AGNC

American Capital Agency Corp. (AGNC)

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Exchange: NASDAQ
Industry: Consumer Services
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American Capital Agency Corp. (AGNC)

Q4 2009 Earnings Call

February 8, 2010 2:00 pm ET

Executives

Malon Wilkus – President & CEO

John Erickson – EVP & CFO

Gary Kain – SVP & CIO

[Bernie Belt] – VP & Controller

Katie Wisecarver – Director IR

Analysts

Steve Delaney - JMP Securities

Bose George – KBW

Jason Arnold - RBC Capital Markets

Mike Widner - Stifel Nicolaus

Daniel Furtado – Jefferies

Mike Taiano – Sandler O’Neill

Matt Howlett – Macquarie Capital
Unspecified Analyst

Jim Delisle - Cambridge Place

Presentation

Operator

Welcome everyone to the American Capital Agency fourth quarter 2009 earnings call. (Operator Instructions) I would now like to turn the conference over to our host Katie Wisecarver; please go ahead.

Katie Wisecarver

Thank you for joining American Capital Agency’s fourth quarter 2009 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 fact, 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.

Certain factors that could cause actual results to differ materially are included in the Risks Factors section of AGNC’s 10-K, dated February 17, 2009, and periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC’s website at www.sec.gov. We disclaim any obligation to update our forward-looking statements.

An archive of this presentation will be available on our website and the telephone recording can be accessed through February 22, by dialing 800-624-1687 and the conference ID number is 52724001.

To view the Q4 slide presentation turn to our website www.agnc.com and click on the Q4 2009 Earnings Presentation link in the upper right corner. Select the webcast option for both slides and audio or click on the link in the conference call section to view the streaming slide presentation during the call. If you have any trouble with the webcast during this presentation please hit F5 to refresh.

Participants on today’s call including Malon Wilkus, Chairman, President, and Chief Executive Officer; John Erickson, Chief Financial Officer and Executive Vice President; Gary Kain, Chief Investment Officer; and [Bernie Belt], Vice President and Controller.

At this time I’d like to turn the call over to Gary Kain.

Gary Kain

Good afternoon everyone and thanks for joining us. I want to start by saying that I am particularly pleased with our results for the quarter because we were able to produce very strong results for our shareholders, while taking significant steps to curtail both prepayment risk and our exposure to changes in interest rates.

I’m going to touch on some specific actions we took later, the evolving prepayment landscape that we witnessed throughout 2009 and now in 2010 really underscores our commitment to active portfolio management and our actions highlight how we think about balancing the generation of attractive risk adjusted returns with book value preservation.

Early in 2009 we felt that the best investment was to purchase high coupon mortgage securities backed by weaker credit borrowers. This move produced handsome returns as a result of the extremely slow speeds registered by these securities and by price appreciation that followed.

But as delinquencies continued to accumulate in these pools these securities became considerably more exposed to the possibility that the nonperforming loans could be bought out by the GSCs which would result in much faster speeds.

At the same time the valuations remained extremely favorable because the market was focused on the slow speeds these securities had exhibited and was arguably somewhat complacent about the risk looking forward. Hence we chose to sell many of these securities, lock in our profits, reduce risk, and find other investment alternatives without this exposure.

Only time will tell if we made the right choice, but just because something worked well in 2009 does not mean that it will work in 2010. So what you can expect from us is to continue to rebalance our portfolio as market conditions, valuations, and risks evolve.

Now with that said, why don’t we look at some highlights on page five, for Q4 we again declared a dividend of $1.40 per share. Our dividend was both below our GAAP net income of $1.79 per weighted average share and our taxable income of $1.69 per share.

The net income number included $0.78 of other income which included realized gains, derivative mark to market and hedging effectiveness. We also had $0.16 worth of amortization expense associated with our terminated swaps.

Earnings net of these two items were $1.01 per share. Overall our undistributed taxable income increased during the quarter by $4.4 million from $17.3 million to $21.7 million. Now given that we raised $122 million in equity during the quarter via the issuance of 5 million shares, on a per share basis our undistributed income remained at $0.90. I want to emphasize that we intend to distribute all of our remaining 2009 taxable income during 2010 as we are required to do under REIT rules.

As of December 31 our investment portfolio totaled $4.3 billion in assets which was an increase of approximately $700 million from September 30. Unlike prior quarters we added a greater percentage of fixed rate assets as we diversified the portfolio in light of the changing prepayment landscape.

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