American Capital Agency Corp.
) reported mixed results in fourth quarter 2012. The company's
net spread income per share of 89 cents in the reported quarter
fell short of the Zacks Consensus Estimate of $1.01. However, it
exceeded the prior quarter figure of 79 cents per share.
Net interest income was $423 million in the reported quarter,
which was above the Zacks Consensus Estimate of $350 million and
ahead of $381 million recorded in the prior quarter.
Behind the Headline Numbers
American Capital Agency recorded an annualized economic return on
common equity of 5% for the reported quarter. As of Dec 31, 2012,
the company's investment portfolio comprised $85.2 billion worth
of agency securities and $12.9 billion of net TBA
(to-be-announced) mortgage positions, at fair value.
Agency securities included $83.6 billion of fixed-rate
securities, $0.9 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 $30.0 billion less than or equal to 15-year
fixed-rate securities, $1.6 billion 20-year fixed-rate securities
and $52.0 billion 30-year fixed-rate securities. Net TBA mortgage
portfolio included $8.7 billion 15-year net TBA securities and
$4.2 billion 30-year net TBA securities, at fair value.
The investment portfolio of American Capital Agency was financed
with $75.4 billion of repurchase agreements and other debt,
resulting in a leverage ratio of 7.0x, including the net payable
for agency securities not yet settled, or 8.2x inclusive of
off-balance sheet TBA financing.
During the reported quarter, the annualized weighted average
yield on the company's agency security portfolio was 2.82% (up 27
basis points sequentially) and its annualized average cost of
funds was 1.19% (up 6 bps sequentially), resulting in a net
interest rate spread of 1.63% (an increase of 21 bps
During the reported quarter, American Capital Agency declared
fourth quarter dividend of $1.25 per share. This equates to a
total of $2.8 billion in dividends or $23.86 per share since its
initial public offering in May 2008.
As of Dec 31, 2012, the company's net book value per share was
$31.64, down from $32.49 as of Sep 30, 2012. This was due to
lower pricing on the company's mortgage-backed securities (MBS)
portfolio. However, it was up from $27.71 reported at prior-year
At year-end 2012, American Capital Agency had cash and cash
equivalents of $2.4 billion compared to $1.4 billion at prior
In a separate press release, American Capital Agency announced an
expansion of the board of directors. In the 2 new positions, the
company elected Prue B. Larocca and John R. Erickson.
Mr. Erickson served as the company's Executive Vice President and
Chief Financial Officer since its formation in 2008. Ms. Larocca,
until her retirement in 2011, served as a Managing Director in
the Mortgage Backed and Asset Backed Finance Group at
Royal Bank of Scotland Group Plc.
Though American Capital Agency reported a mixed bag in the fourth
quarter, we note that the company's exclusive focus on fixed-rate
agency securities guaranteed by the U.S. government limits its
However, increased volatility and deterioration in the broader
residential mortgage and RMBS markets may limit 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 stock in the same industry that is performing
better and worth a look is
Invesco Mortgage Capital Inc.
) carrying a Zacks Rank #2 (Buy).