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AGNC Investment (AGNC) Q2 Earnings Lag Estimates, NII Slips

Zacks Equity Research

AGNC Investment Corp. AGNC reported second-quarter 2019 net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 49 cents per share, marginally missing the Zacks Consensus Estimate of 50 cents. Moreover, it came in lower than the prior-year figure of 63 cents per share.

Nonetheless, the company reported second-quarter comprehensive loss per common share of 15 cents, asagainst the comprehensive income per common share of 34 cents posted in the prior-year quarter. Net interest income (NII) of $123 million came in lower than the prior-year quarter figure of $177 million.

Also, as of Jun 30, 2019, the company’s tangible net book value per share came in at $16.58, down from $18.41 as of Jun 30, 2018.

The economic loss on tangible common equity for the company during the second quarter was 0.9%. This included dividend per share of 54 cents and a decrease of 65 cents in tangible net book value per share.

Inside the Headlines

As of Jun 30, 2019, the company’s investment portfolio aggregated $104.4 billion. This included $91.6 billion of agency mortgage backed securities (MBS), $11.2 billion of to-be-announced (TBA) securities, and $1.7 billion of credit risk transfer and non-agency securities.

Inclusive of its net TBA position and net payable/ (receivable) for unsettled securities, AGNC Investment’s tangible net book value "at risk" leverage ratio was 9.8 as of Jun 30, 2019, compared with9.4x as of Mar 31, 2019.

For the June-end quarter, the company's investment portfolio bore a weighted average constant prepayment rate of 10%, up from the 9.7% witnessed in second-quarter 2018.

Excluding net TBA position, AGNC Investment's average asset yield on its portfolio, excluding the net TBA position, came in at 2.99% in the second quarter, down from the 3.14% recorded in the previous quarter.

For the April-June quarter, combined average cost of funds inclusive of interest rate swap costs came in at 2.24%, a decline from 2.27% witnessed in the previous quarter.

Combined annualized net interest spread (excluding estimated catch- up premium amortization benefit), came in at 1%, down from 1.35% reported in prior-year quarter.

Also, as of Jun 30, 2019, AGNC Investment’s cash and cash equivalents totaled $870 million, down from $921 million as of Dec 31, 2018.

Dividend Update

During the second quarter, AGNC Investment announced monthly dividend of 18 cents, 16 cents and 16 cents per share for April, May and June, respectively. Notably, the company announced a total of $9.1 billion in common stock dividends or $40.36 per common share since its initial public offering in May 2008 through second-quarter 2019.

Our Viewpoint

Significant decline in interest rates during the second quarter resulted in yield-curve steepening and higher interest rate volatility. Furthermore, lower rates led to increase in prepayment expectations that impacted spreads on Agency MBS. In fact, wider spreads on Agency MBSs as compared to the U.S. Treasury and interest rate swap hedges, resulted in underperformance of the company’s investment portfolio.  

Moreover, higher MBS repo funding rates and inflated amortization expense dampened the company’s bottom-line growth during the June-end quarter.  

AGNC Investment currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AGNC Investment Corp. Price and EPS Surprise
 

AGNC Investment Corp. Price and EPS Surprise


AGNC Investment Corp. price-eps-surprise | AGNC Investment Corp. Quote

We now look forward to the earnings releases of other REITs like Chimera Investment Corporation CIM, Annaly Capital Management, Inc. NLY and New Residential Investment Corp. NRZ. While Chimera Investment and Annaly will release second-quarter figures on Jul 31, New Residential Investment is scheduled to report on Jul 30.

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