AGNC Reports Modestly - Analyst Blog

American Capital Agency Corp. (AGNC), a real estate investment trust (REIT) that focuses on investments in mortgage pass-through securities and collateralized mortgage obligations (CMOs), reported earnings of $1.69 per share during third quarter 2010, compared to $1.82 in the year-earlier quarter. Excluding non-recurring items, recurring net income for the reported quarter was $1.11 per share.

The company recorded an annualized return on equity of 27.9% for the quarter. As of September 30, 2010, American Capital Agency's investment portfolio comprised $9.7 billion worth of agency securities at fair value, including $5.6 billion of fixed-rate securities, $3.6 billion of adjustable-rate securities and $0.5 billion of CMOs. About 37% of the investment portfolio comprised adjustable-rate securities, 36% of 30-year fixed-rate securities, 22% of 15-year fixed-rate securities and 5% of CMOs backed by fixed and adjustable-rate securities.

The investment portfolio of American Capital Agency was financed with $8.0 billion of repurchase agreements, $0.9 billion of equity capital and $0.1 billion of variable debt resulting in a leverage ratio of 8.8x. The leverage ratio adjusted for the net equity proceeds raised was 7.2x, which was consistent with the third quarter average.   

During the quarter, American Capital Agency issued 5.3 million common shares raising net proceeds of approximately $142 million. The company also raised $328 million from a follow-on equity offering settled on October 1, 2010. American Capital Agency declared a third quarter dividend of $1.40 per share, which equates to a total of $273.2 million in dividends or $11.86 per share since its initial public offering. It is one of only a few companies to have increased its dividend during the economic downturn.

American Capital Agency's weighted average net interest spread was 2.21% during the quarter. As of September 30, 2010, the company's net asset value per share was $23.43, while pro forma net asset value (adjusted for the follow-on equity offering) was $23.78. At quarter-end, American Capital Agency had cash and cash equivalents of $115.3 million. We maintain our Neutral recommendation of the stock, which currently has a Zacks #2 Rank translating into a short-term Buy rating.