Amid volatility in both interest rates and mortgage spreads
environment, the mortgage real estate investment trust (commonly
known as mREIT) --
American Capital Agency Corp.
) -- reported disappointing third-quarter 2013 results with its
net spread income per share of 61 cents significantly lagging the
Zacks Consensus Estimate of 84 cents.
Moreover, results compared unfavorably with the prior-quarter
figure of 66 cents and the year-ago quarter's 79 cents per share.
The company's book value continued to decline during the quarter.
To counter the challenges, the company repositioned the portfolio
and shifted to shorter maturity securities, controlled leverage,
and maintained relatively high hedge ratios.
American Capital Agency reported net interest income of $413
million in the reported quarter, marginally missing the
prior-quarter figure of $414 but ahead of the Zacks Consensus
Estimate of $339 million and the year-ago period figure of $381
Behind the Headline Numbers
American Capital Agency reported an economic gain on common
equity for the quarter of 2.2%, or 8.7% annualized. This compared
with an economic loss on common equity of 32.9% in the prior
quarter. As of Sep 30, 2013, the company's net book value per
common share was $25.27, down from $25.51 as of Jun 30 and $28.93
as of Mar 31, 2013.
As of Sep 30, 2013, the company's investment portfolio aggregated
$77.8 billion of agency securities. This included $(7.3) billion
of net short TBA (to-be-announced) mortgage positions, at fair
As of that date, American Capital Agency's investment portfolio
comprised $75.1 billion of fixed-rate securities, $1.0 billion of
adjustable-rate securities and $1.7 billion of collateralized
mortgage obligations (CMOs).
American Capital Agency's fixed-rate mortgage assets consisted of
$42.1 billion less than or equal to 15-year securities, $1.4
billion 20-year fixed-rate securities and $38.8 billion 30-year
fixed-rate securities, $(2.0) billion less than or equal to
15-year net short TBA securities and $(5.2) billion 30-year net
short TBA securities, at fair value.
Around $78.4 billion of the company's repurchase agreements were
utilized for financing acquisitions of agency securities, while
$4.1 billion was used to obtain U.S. Treasury securities. The
company's average leverage ratio and average "at risk" leverage
ratio for the third quarter was 7.8x.
During the reported quarter, the company's average asset yield on
its agency security portfolio was 2.59% (down 33 basis points
sequentially) and its average cost of funds was 1.39% (down 4 bps
sequentially), resulting in an average net interest rate spread
of 1.20% (a sequential decline of 29 bps).
As of Sep 30, 2013, American Capital Agency had cash and cash
equivalents of $2.1 billion, down from $2.9 billion at the
On Sep 19, 2013, the company declared a third-quarter dividend on
its common stock of 80 cents per share, reflecting nearly 24%
decline from the prior quarter. This was paid on Oct 28, 2013 to
common stockholders of record as of Sep 30, 2013. As a matter of
fact, the company paid a total of $4.0 billion in common
dividends, or $26.96 per common share, since its May 2008 initial
In the third quarter, American Capital Agency repurchased
approximately 11.9 million shares of its common stock,
representing 3% of its outstanding shares as of Jun 30, 2013, at
an average price of $22.16 per share, including expenses, and
aggregating around $263 million. With this, around 14.8 million
shares have been bought back for approximately $347 million since
the beginning of the buyback program in the fourth quarter of
Moreover, the company declared that the share buyback
authorization has been elevated to up to $1 billion from $500
million and extended through Dec 31, 2014. The company plans to
buyback shares at a time when the repurchase price is less than
its current net book value per common share estimate.
While the volatility in both interest rates and mortgage spreads
during the third quarter impacted the company's results, we
believe that the 'no taper' announcement brought relief to the
company. Moreover, curtailed growth projections by the Fed and a
lackluster employment scenario implied a continued low interest
rate environment in the near term, which would support mREITs
like American Capital Agency.
American Capital Agency is externally managed and advised by
American Capital AGNC Management, LLC, an affiliate of
American Capital, Ltd.
). It currently has a Zacks Rank #3 (Hold).
However, other mREIT stocks which are performing well and deserve
a look are
AG Mortgage Investment Trust Inc.
Apollo Commercial Real Estate Finance Inc.
). While AG Mortgage Investment Trust has a Zacks Rank #1 (Strong
Buy), Apollo Commercial Real Estate Finance carries a Zacks Rank
AMER CAP LTD (ACAS): Free Stock Analysis
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