U.S. Markets closed

American Capital Agency Beats Q2 Estimates, Book Value Grows

Zacks Equity Research

Mortgage real estate investment trust (commonly known as mREIT), American Capital Agency Corp.’s (AGNC) second-quarter net spread and dollar roll income of 87 cents per share (excluding "catch-up" premium amortization) significantly exceeded the Zacks Consensus Estimate of 67 cents.

Results also compared favorably with the prior-quarter figure of 71 cents and shares were up 0.84% in the after-hours trading on Nasdaq.

Results benefited from the strategic decisions implemented by the company, including maintaining of leverage level, operating with a larger duration gap and reduction in the size of its swaption portfolio. For the second quarter, net spread and dollar roll income included 39 cents per share of dollar roll income, reflecting an uptick from 14 cents in the preceding quarter.

American Capital Agency’s annualized economic return on common equity came in at 39.6% compared with 20.5% in the prior quarter. As of Jun 30, 2014, the company’s net book value per share was $26.26, reflecting a 7.2% rise from $24.49 per share as of Mar 31, 2014.

However, net interest income of $290 million, came marginally below the prior-quarter level of $291 million, missing the Zacks Consensus Estimate of $304 million.

Behind the Headline Numbers

As of Jun 20, 2014, the company's investment portfolio aggregated $71.9 billion of agency mortgage-backed securities (MBS.V). This included $18.4 billion of net long TBA (to-be-announced) mortgage positions at fair value. It also held investments worth $202 million in mortgage REIT equity securities. During the quarter, the company recognized $24 million or 7 cents per share of dividends and gains from REIT equity securities.

Including its net TBA position, American Capital Agency’s "at risk" leverage ratio was 6.9x as of Jun 30, 2014, compared with 7.6x as of Mar 31, 2014, primarily due to net gains on its portfolio and a modest increase in its equity base. For the second quarter, its investment portfolio had a CPR (constant prepayment rates) of 9%, versus 7% in the prior quarter.

Average asset yield on its agency security portfolio was 2.71%, up from 2.54% in the prior quarter (2.70% excluding estimated "catch-up" premium amortization cost).

Combined annualized net interest rate spread on its repo and dollar roll funded assets was 1.84%, compared with 1.43% in the prior quarter (or 1.59% excluding "catch-up" amortization cost).

Moreover, as of Jun 30, 2014, American Capital Agency had cash and cash equivalents of $1.75 billion, up marginally from $1.73 billion at the end of the prior quarter.

Dividend Update

On Jun 17, 2014, the company declared a second-quarter dividend on its common stock of 65 cents per share, unchanged from the preceding quarter. This was paid on Jul 28 to common stockholders of record as of Jun 30, 2014. As a matter of fact, the company paid a total of $4.7 billion or $28.91 per share in common dividends, since its initial public offering in May 2008.


Better-than-expected results of American Capital Agency encourage us regarding the coming quarters. Moreover, the company is witnessing a recovery in book value. Going forward, we believe that the concerted measures to reposition its portfolio so as to meet the current interest rate environment, control the leverage level as well as reduce size of its swaption portfolio, augur well for this Zacks Rank #1 (Strong Buy) stock’s profitability.

The company is externally managed and advised by American Capital AGNC Management, LLC, an affiliate of American Capital, Ltd. (ACAS).

Investors interested in the mREIT industry may also consider stocks like Apollo Commercial Real Estate Finance, Inc. (ARI) and ZAIS Financial Corp. (ZFC). Both the stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on AGNC
Read the Full Research Report on ACAS
Read the Full Research Report on ZFC
Read the Full Research Report on ARI

Zacks Investment Research