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AGNC Investment Corp. Announces Fourth Quarter 2019 Financial Results

BETHESDA, Md. , Jan. 29, 2020 /PRNewswire/ -- AGNC Investment Corp. ("AGNC" or the "Company") (Nasdaq: AGNC) today announced financial results for the quarter ended December 31, 2019.

FOURTH QUARTER 2019 FINANCIAL HIGHLIGHTS

  • $1.59 comprehensive income per common share, comprised of:
  • $0.57 net spread and dollar roll income per common share, excluding estimated "catch-up" premium amortization benefit 1
  • $17.66 tangible net book value per common share as of December 31, 2019
  • $0.48 dividends declared per common share for the fourth quarter
  • 9.6% economic return on tangible common equity for the quarter

OTHER FOURTH QUARTER HIGHLIGHTS

  • $107.9 billion investment portfolio as of December 31, 2019 , comprised of:
  • 9.4x tangible net book value "at risk" leverage as of December 31, 2019
  • 15.4% portfolio CPR for the quarter
  • 1.33% annualized net interest spread and TBA dollar roll income for the quarter, excluding estimated "catch-up" premium amortization benefit

2019 FULL YEAR HIGHLIGHTS

  • $3.08 comprehensive income per common share, comprised of:
  • $2.16 net spread and dollar roll income per common share, excluding estimated "catch-up" premium amortization cost 1
  • $2.00 in dividends declared per common share
  • 18.7% economic return on tangible common equity for the year, comprised of:
  • 13.3% total stock return
  • $1.1 billion of accretive capital transactions during the year

___________

1.

Represents a non-GAAP measure.  Please refer to a reconciliation to the most applicable GAAP measure and additional information regarding the use of non-GAAP financial information later in this release.

MANAGEMENT REMARKS

"AGNC's very strong performance in the fourth quarter of 2019 concluded a tremendous year for the Company," said Gary Kain , the Company's Chief Executive Officer and Chief Investment Officer.   "Our economic return of 9.6% in the fourth quarter represents AGNC's best quarter since the second quarter of 2014 and drove a total economic return of 18.7% for the year.  Looking ahead, we believe AGNC remains extremely well-positioned to continue to generate attractive risk-adjusted returns as a more benign interest rate environment and favorable developments on the financing front should serve as a positive tailwind for levered investors in Agency MBS as we enter 2020.  

"In the fourth quarter, most financial assets benefited from continued Federal Reserve monetary easing and reduced global trade uncertainty following the announcement of the Phase One trade deal between the United States and China.  Valuations associated with risk assets, including U.S. equities, increased significantly as a result.  In addition to the Federal Reserve's quarter-point rate cut in October, the Fed dramatically increased liquidity in the repo markets through its Open Market Operations.  The 10-year U.S. Treasury rate increased 0.26% to 1.92% at year-end, up from 1.66% at the end of the third quarter, as a result of the broader risk-on move by global investors.  Agency MBS valuations strengthened materially during the quarter, with spreads to swaps recovering a portion of the widening seen over the prior two quarters.  That said, valuations on Agency MBS remain attractive both in absolute terms and relative to other fixed income assets."

"Our 9.6% economic return for the fourth quarter was comprised of $0.48 of dividends per common share and $1.11 increase in tangible net book value per common share, driven primarily by the tightening of Agency MBS spreads," commented Peter Federico , the Company's President and Chief Operating Officer.  "In 2019, we maintained our low-cost advantage in the residential mortgage REIT sector with aggregate operating expenses of 80 basis points of our equity capital, which provides investors with a significant advantage relative to our peers.  Finally, despite increasing our investment portfolio by over $5 billion during the fourth quarter, our "at risk" leverage declined to 9.4x as of December 31, 2019 from 9.8x as of September 30, 2019 , providing us additional capacity to take advantage of favorable earnings environments going forward.  As a result, we are excited about AGNC's positioning as we enter 2020."

TANGIBLE NET BOOK VALUE PER COMMON SHARE

As of December 31, 2019, the Company's tangible net book value per common share was $17.66 per share, an increase of 6.7% compared to $16.55 per share as of September 30, 2019, as Agency MBS valuations significantly outperformed interest rate hedges.  The Company's tangible net book value per common share excludes $526 million , or $0.97 per common share, of goodwill as of December 31, 2019 and September 30, 2019, respectively.

INVESTMENT PORTFOLIO

As of December 31, 2019, the Company's investment portfolio totaled $107.9 billion , comprised of:

  • $106.3 billion of Agency MBS and net TBA securities, including:
  • $1.6 billion of CRT and non-Agency securities.

As of December 31, 2019, 30-year and 15-year fixed-rate Agency securities represented 89% and 8%, of the Company's investment portfolio, respectively, compared to 88% and 9%, respectively, as of September 30, 2019.

As of December 31, 2019, the Company's fixed-rate securities' weighted average coupon was 3.60%, compared to 3.65% as of September 30, 2019, comprised of the following weighted average coupons:

  • 3.63% for 30-year fixed-rate securities;
  • 3.19% for 15-year fixed rate securities; and
  • 3.87% for 20-year fixed-rate securities.

The Company accounts for TBA securities (or "dollar roll funded assets") as derivative instruments and recognizes dollar roll income in other gain (loss), net on the Company's financial statements.  As of December 31, 2019, the Company's net TBA position had a fair value of $7.4 billion , consisting of $9.0 billion long and $(1.6) billion short TBA securities, and a GAAP net carrying value of $25 million reported in derivative assets/(liabilities) on the Company's balance sheet.  As of September 30, 2019, the Company's net TBA position had a fair value of $1.9 billion , consisting of $10.4 billion long and $(8.5) billion short TBA securities, and a GAAP net carrying value of $47 million .

CONSTANT PREPAYMENT RATES

The Company's investment portfolio had a weighted average CPR of 15.4% for the fourth quarter, compared to 13.5% for the prior quarter.  The weighted average projected CPR for the remaining life of the Company's Agency securities held as of December 31, 2019 declined to 10.8%, from 13.4% as of September 30, 2019, due to higher rates and changes in portfolio composition.

The weighted average cost basis of the Company's investment portfolio was 103.3% of par value as of December 31, 2019.  Net premium amortization cost on the Company's investment portfolio for the fourth quarter was $(84) million , or $(0.16) per common share, which includes a "catch-up" premium amortization benefit of $48 million , or $0.09 per common share, due to changes in the Company's projected CPR estimates for securities acquired prior to the fourth quarter.  This compares to net premium amortization cost for the prior quarter of $(192) million , or $(0.35) per common share, including a "catch-up" premium amortization cost of $(55) million , or $(0.10) per common share.

ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD

The Company's average asset yield on its investment portfolio, excluding the net TBA position, was 3.28% for the fourth quarter, compared to 2.91% for the prior quarter.  Excluding "catch-up" premium amortization, the Company's average asset yield was 3.08% for the fourth quarter, compared to 3.15% for the prior quarter. Including the net TBA position and excluding "catch-up" premium amortization, the Company's average asset yield for the fourth quarter was 3.09%, compared to 3.16% for the prior quarter.

For the fourth quarter, the weighted average interest rate on the Company's Agency repurchase agreements was 2.12%, compared to 2.48% for the prior quarter.  The Company's average implied TBA funding cost was 1.88% for the fourth quarter, compared to 2.00% for the prior quarter.  Inclusive of interest rate swaps, the Company's combined average cost of funds for the fourth quarter was 1.76%, compared to 1.85% for the prior quarter.

The Company's annualized net interest spread, including the net TBA position and interest rate swaps, was 1.52% for the fourth quarter, compared to 1.09% for the prior quarter.  Excluding "catch-up" premium amortization benefit/cost, the Company's combined annualized net interest spread for the fourth quarter was 1.33%, versus 1.31% for the prior quarter.

NET SPREAD AND DOLLAR ROLL INCOME

The Company recognized net spread and dollar roll income (a non-GAAP financial measure) for the fourth quarter of $0.57 per common share, excluding $0.09 per common share of "catch-up" premium amortization benefit, compared to $0.59 per common share for the prior quarter, excluding $(0.10) per common share of "catch-up" premium amortization cost.

A reconciliation of the Company's net interest income to net spread and dollar roll income and additional information regarding the Company's use of non-GAAP measures are included later in this release.

LEVERAGE

As of December 31, 2019, $89.1 billion of Agency repurchase agreements, $7.4 billion of net TBA dollar roll positions (at cost) and $0.2 billion of other debt were used to fund the Company's investment portfolio.  The remainder, or approximately $0.1 billion , of the Company's repurchase agreements was used to fund purchases of U.S. Treasury securities ("U.S. Treasury repo") and is not included in the Company's leverage measurements.  Inclusive of its net TBA position and net payable/(receivable) for unsettled investment securities, the Company's tangible net book value "at risk" leverage ratio was 9.4x as of December 31, 2019, compared to 9.8x as of September 30, 2019.  The Company's average "at risk" leverage for the fourth quarter was 9.5x tangible net book value, compared to 10.0x in the prior quarter.

As of December 31, 2019, the Company's Agency repurchase agreements had a weighted average interest rate of 2.17%, compared to 2.48% as of September 30, 2019, and a weighted average remaining maturity of 55 days, compared to 64 days as of September 30, 2019.  As of December 31, 2019, $35.5 billion , or 40%, of the Company's Agency repurchase agreements were funded through the Company's captive broker-dealer subsidiary, Bethesda Securities, LLC.

As of December 31, 2019, the Company's Agency repurchase agreements had remaining maturities of:

  • $77.4 billion of three months or less;
  • $5.7 billion from three to six months;
  • $3.7 billion from six to twelve months; and
  • $2.3 billion from one to three years.

HEDGING ACTIVITIES

As of December 31, 2019, interest rate swaps, swaptions and U.S. Treasury positions equaled 102% of the Company's outstanding balance of Agency repurchase agreements, net TBA position and other debt, compared to 101% as of September 30, 2019.

As of December 31, 2019, the Company's interest rate swap position totaled $79.1 billion in notional amount, compared to $81.8 billion as of September 30, 2019.  As of December 31, 2019, the Company's interest rate swap portfolio had an average fixed pay rate of 1.29%, an average receive rate of 1.59% and an average maturity of 2.7 years, compared to 1.35%, 1.98% and 2.8 years, respectively, as of September 30, 2019.  As of December 31, 2019, 86%, 11% and 3% of the Company's interest rate swap portfolio was linked to the Overnight Index Swap Rate ("OIS"), three-month London Interbank Offered Rate ("LIBOR") and Secured Overnight Financing Rate ("SOFR"), respectively, compared to 79%, 14% and 7%, respectively, as of September 30, 2019.

As of December 31, 2019, the Company had payer swaptions outstanding totaling $8.9 billion , compared to $8.7 billion as of September 30, 2019.  As of December 31, 2019, the Company had net short U.S. Treasury positions outstanding totaling $10.7 billion , compared to $6.2 billion as of September 30, 2019.

OTHER GAIN (LOSS), NET

For the fourth quarter, the Company recorded a net gain of $609 million in other gain (loss), net, or $1.12 per common share, compared to a net loss of $(104) million , or $(0.19) per common share, for the prior quarter.  Other gain (loss), net for the fourth quarter was comprised of:

  • $107 million of net realized gains on sales of investment securities;
  • $(160) million of net unrealized losses on investment securities measured at fair value through net income;
  • $85 million of interest rate swap periodic income;
  • $367 million of net gains on interest rate swaps;
  • $45 million of net gains on interest rate swaptions;
  • $136 million of net gains on U.S. Treasury positions;
  • $24 million of TBA dollar roll income;
  • $(3) million of net mark-to-market losses on TBA securities; and
  • $8 million of other miscellaneous gains.

OTHER COMPREHENSIVE INCOME

During the fourth quarter, the Company recorded other comprehensive income of $15 million , or $0.03 per common share, consisting of net unrealized gains on the Company's Agency securities recognized through OCI, compared to a $246 million , or $0.45 per common share, of other comprehensive income for the prior quarter.

COMMON STOCK DIVIDENDS

During the fourth quarter, the Company declared dividends of $0.16 per share to common stockholders of record as of October 31 , November 29 and December 31, 2019 , respectively, totaling $0.48 per share for the quarter, which were paid on November 12 and December 10, 2019 and January 10, 2020 , respectively.  Since its May 2008 initial public offering through the fourth quarter of 2019, the Company has declared a total of $9.6 billion in common stock dividends, or $41.32 per common share.

The Company also announced the tax characteristics of its 2019 common stock dividends. The Company's distributions of $2.02 per common share for dividends declared during the twelve month period ended November 30, 2019 consisted of $1.159504 ordinary dividend distributions and $0.860496 non-dividend distributions (also known as "return of capital") per common share for federal income tax purposes.  The dividend of $0.16 per common share declared on December 10, 2019 , having a record date of December 31, 2019 , which was paid on January 10, 2020 , will be reported as a 2020 distribution for federal income tax purposes. The Company's distributions for dividends paid during the twelve months ended December 31, 2019 on each series of its preferred stock consisted entirely of ordinary dividend distributions for federal income tax purposes.  Stockholders should receive an IRS Form 1099-DIV containing this information from their brokers, transfer agents or other institutions.  For additional detail please visit the Company's website at www.AGNC.com .

FINANCIAL STATEMENTS, OPERATING PERFORMANCE AND PORTFOLIO STATISTICS

The following measures of operating performance include net spread and dollar roll income; net spread and dollar roll income, excluding "catch-up" premium amortization; economic interest income; economic interest expense; estimated taxable income; and the related per common share measures and financial metrics derived from such information, which are non-GAAP financial measures.  Please refer to "Use of Non-GAAP Financial Information" later in this release for further discussion of non-GAAP measures.

 

AGNC INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)












December 31,


September 30, 


June 30,


March 31,


December 31,


2019


2019


2019


2019


2018


(unaudited)


(unaudited)


(unaudited)


(unaudited)



Assets:










     Agency securities, at fair value (including pledged securities of 
     $92,608, $93,688, $87,582, $89,471 and $78,619, respectively)

$                 98,516


$                 98,577


$                 91,140


$                 93,044


$                 82,291

     Agency securities transferred to consolidated variable interest 
     entities, at fair value (pledged securities)

371


393


411


425


436

     Credit risk transfer securities, at fair value (including pledged 
     securities of $309, $358, $269, $142 and $141, respectively)

976


1,134


1,117


1,129


1,012

     Non-Agency securities, at fair value (including pledged securities of 
     $0, $0, $0, $45 and $45, respectively)

579


579


603


672


548

     U.S. Treasury securities, at fair value (including pledged securities of 
     $97, $162, $1,152, $121 and $0, respectively)

97


215


1,152


121


46

     Cash and cash equivalents

831


906


870


929


921

     Restricted cash

451


734


789


517


599

     Derivative assets, at fair value

190


175


116


253


273

     Receivable for investment securities sold (including pledged 
     securities of $0, $105, $673, $439 and $489, respectively)

-


105


679


439


489

     Receivable under reverse repurchase agreements

10,181


6,093


8,848


20,430


21,813

     Goodwill

526


526


526


526


526

     Other assets

364


324


325


322


287

          Total assets

$               113,082


$               109,761


$               106,576


$               118,807


$               109,241

Liabilities:










     Repurchase agreements

$                 89,182


$                 90,612


$                 86,266


$                 86,685


$                 75,717

     Debt of consolidated variable interest entities, at fair value

228


238


251


266


275

     Payable for investment securities purchased

2,554


3,094


878


1,125


1,204

     Derivative liabilities, at fair value

6


22


63


53


84

     Dividends payable

104


100


101


107


106

     Obligation to return securities borrowed under reverse 
     repurchase agreements, at fair value

9,543


5,114


7,754


19,275


21,431

     Accounts payable and other liabilities

424


368


917


795


518

          Total liabilities

102,041


99,548


96,230


108,306


99,335

Stockholders' equity:










     Preferred stock - aggregate liquidation preference of $963, $735, 
     $735, $735 and $500, respectively

932


711


711


711


484

     Common stock - $0.01 par value; 540.9, 540.9, 547.8, 536.3 and 
     536.3 shares issued and outstanding, respectively

5


5


5


5


5

     Additional paid-in capital

13,893


13,888


13,988


13,795


13,793

     Retained deficit

(3,886)


(4,473)


(4,194)


(3,467)


(3,433)

     Accumulated other comprehensive income (loss)

97


82


(164)


(543)


(943)

          Total stockholders' equity

11,041


10,213


10,346


10,501


9,906

          Total liabilities and stockholders' equity

$               113,082


$               109,761


$               106,576


$               118,807


$               109,241











Tangible net book value per common share 1

$                   17.66


$                   16.55


$                   16.58


$                   17.23


$                   16.56

 

 

AGNC INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)












Three Months Ended


Year Ended


December 31,


September 30, 


June 30,


March 31,


December 31,


2019


2019


2019


2019


2019

Interest income:










     Interest income

$                      768


$                      676


$                      693


$                      705


$                   2,842

     Interest expense

481


557


570


541


2,149

          Net interest income

287


119


123


164


693

Other gain (loss), net:










     Realized gain on sale of investment securities, net

107


89


132


60


388

     Unrealized gain (loss) on investment securities measured at fair value 
     through net income, net

(160)


355


759


1,060


2,014

     Gain (loss) on derivative instruments and other securities, net

662


(548)


(1,438)


(1,000)


(2,324)

     Total other gain (loss), net

609


(104)


(547)


120


78

Expenses:










     Compensation and benefits

16


10


11


10


47

     Other operating expense

9


9


9


9


36

     Total operating expense

25


19


20


19


83

Net income (loss)

871


(4)


(444)


265


688

     Dividend on preferred stock

18


13


13


10


54

     Issuance costs of redeemed preferred stock

6


-


-


-


6

Net income (loss) available (attributable) to common stockholders

$                      847


$                      (17)


$                    (457)


$                      255


$                      628











Net income (loss)

$                      871


$                        (4)


$                    (444)


$                      265


$                      688

     Unrealized gain on investment securities measured at fair value 
     through other comprehensive income (loss), net

15


246


379


400


1,040

Comprehensive income (loss)

886


242


(65)


665


1,728

     Dividend on preferred stock

18


13


13


10


54

     Issuance costs of redeemed preferred stock

6


-


-


-


6

Comprehensive income (loss) available (attributable) to common
stockholders

$                      862


$                      229


$                      (78)


$                      655


$                   1,668











Weighted average number of common shares outstanding - basic

541.4


546.4


537.8


536.7


540.6

Weighted average number of common shares outstanding - diluted

542.6


546.4


537.8


537.2


541.4

Net income (loss) per common share - basic

$                     1.56


$                   (0.03)


$                   (0.85)


$                     0.48


$                     1.16

Net income (loss) per common share - diluted

$                     1.56


$                   (0.03)


$                   (0.85)


$                     0.47


$                     1.16

Comprehensive income (loss) per common share - basic

$                     1.59


$                     0.42


$                   (0.15)


$                     1.22


$                     3.09

Comprehensive income (loss) per common share - diluted

$                     1.59


$                     0.42


$                   (0.15)


$                     1.22


$                     3.08

Dividends declared per common share

$                     0.48


$                     0.48


$                     0.50


$                     0.54


$                     2.00

 

 

AGNC INVESTMENT CORP.

RECONCILIATION OF GAAP NET INTEREST INCOME TO NET SPREAD AND DOLLAR ROLL INCOME (NON-GAAP MEASURE) 2

(in millions, except per share data)

(unaudited)












Three Months Ended


Year Ended


December 31,


September 30, 


June 30,


March 31,


December 31,


2019


2019


2019


2019


2019

GAAP net interest income:










     Interest income

$                      768


$                      676


$                      693


$                      705


$                   2,842

    Interest expense

481


557


570


541


2,149

GAAP net interest income

287


119


123


164


693

     TBA dollar roll income, net 3,4

24


29


22


19


94

     Interest rate swap periodic income, net 3,8

85


146


88


83


402

     Other interest and dividend income 3

3


4


4


3


14

Adjusted net interest and dollar roll income

399


298


237


269


1,203

     Operating expense

(25)


(19)


(20)


(19)


(83)

Net spread and dollar roll income

374


279


217


250


1,120

     Dividend on preferred stock

18


13


13


10


54

Net spread and dollar roll income available to common stockholders

356


266


204


240


1,066

     Estimated "catch-up" premium amortization cost (benefit) due to change in 
     CPR forecast 11

(48)


55


58


39


104

Net spread and dollar roll income, excluding "catch-up" premium
amortization, available to common stockholders

$                      308


$                      321


$                      262


$                      279


$                   1,170











Weighted average number of common shares outstanding - basic

541.4


546.4


537.8


536.7


540.6

Weighted average number of common shares outstanding - diluted

542.6


547.1


538.4


537.2


541.4

Net spread and dollar roll income per common share - basic

$                     0.66


$                     0.49


$                     0.38


$                     0.45


$                     1.97

Net spread and dollar roll income per common share - diluted

$                     0.66


$                     0.49


$                     0.38


$                     0.45


$                     1.97

Net spread and dollar roll income, excluding "catch-up" premium
amortization, per common share - basic

$                     0.57


$                     0.59


$                     0.49


$                     0.52


$                     2.16

Net spread and dollar roll income, excluding "catch-up" premium
amortization, per common share - diluted

$                     0.57


$                     0.59


$                     0.49


$                     0.52


$                     2.16

 

 

...

AGNC INVESTMENT CORP.

RECONCILIATION OF GAAP NET INCOME TO ESTIMATED TAXABLE INCOME (NON-GAAP MEASURE) 2

(in millions, except per share data)

(unaudited)












Three Months Ended


Year Ended


December 31,


September 30, 


June 30,


March 31,


December 31,


2019


2019


2019


2019


2019

Net income/(loss)

$                      871


$                        (4)


$                    (444)


$                      265