MTGE American Capital Mortgage Investment Corp. Reports $1.72 Earnings Per Share and $20.87 Net Book Value Per Share
PROVIDED BY PR Newswire - 4:04 PM 02/08/2012
BETHESDA, Md., Feb. 8, 2012 /PRNewswire/ -- American Capital Mortgage Investment Corp. (MTGE) today reported net income for the three months ended December 31, 2011 of $17.2 million, or $1.72 per share, and net book value of $20.87 per share.
FOURTH QUARTER 2011 FINANCIAL HIGHLIGHTS
$1.72 per share of net income
Includes all unrealized gains and losses on investment and hedging portfolios, due to fair value option election and no hedge accounting
$0.86 net spread income per share
Excludes $0.86 per share of other investment related net gains
$1.07 per share of estimated taxable income
$0.80 per share dividend declared
$0.24 estimated undistributed taxable income per share as of December 31, 2011
Increased $0.27 per share from $(0.03) per share as of September 30, 2011
$20.87 net book value per share as of December 31, 2011
Increased $0.91 per share from $19.96 per share as of September 30, 2011
34% annualized economic return
Comprised of $0.80 per share dividend and $0.91 per share increase in net book value
OTHER FOURTH QUARTER HIGHLIGHTS
$1.8 billion investment portfolio value as of December 31, 2011
8.0x leverage as of December 31, 2011
7.5x average leverage for the quarter
5% actual constant prepayment rate ("CPR") for agency securities held during the quarter
4% actual CPR for agency securities for the month of December 2011
11% average projected life CPR for agency securities as of December 31, 2011
2.40% annualized net interest rate spread for the quarter
2.38% net interest rate spread as of December 31, 2011
"We are pleased to announce our first full quarter of results for MTGE since going public in the middle of an extremely volatile third quarter," commented Gary Kain, President and Chief Investment Officer. "Despite the very challenging environments on both the non-agency and prepayment front during the latter half of 2011, we were able to grow our net book value to $20.87 per share, over 4% above our IPO price of $20.00 per share. In fact, MTGE produced an annualized economic (or mark-to-market) return of 34% for the fourth quarter, through a combination of $0.80 per share in dividends and net book value growth of $0.91 per share. As we look forward to the rest of 2012, we continue to be very optimistic about the future of our business and feel the Company is in a very strong position to continue to produce attractive risk-adjusted returns."
"We are proud of the accomplishments that the team has achieved over the course of 2011, particularly given the volatile market conditions at the time of our IPO and throughout the second half of the year," said John Erickson, Executive Vice President and Chief Financial Officer. "We wholeheartedly appreciate the confidence investors have placed in MTGE and are very pleased to be able to deliver on those expectations."
INVESTMENT PORTFOLIO
As of December 31, 2011, the Company's investment portfolio totaled $1.8 billion of agency and non-agency securities, at fair value, comprised of $1.7 billion of fixed-rate agency securities and $76 million of non-agency securities, of which $50 million are included in Linked Transactions. As of December 31, 2011, the Company's investment portfolio was comprised of 37% 15-year fixed-rate agency securities, 17% 20-year fixed rate agency securities, 42% 30-year fixed-rate agency securities and 4% non-agency securities.
"We maintained our selective approach to investing in non-agency assets during the fourth quarter, especially given the existing price volatility and liquidity conditions," said Jeff Winkler, Senior Vice President and Co-Chief Investment Officer. "That said, we have been able to source attractive assets during both the fourth quarter and January and we will continue to develop this portfolio as compelling opportunities arise during 2012."
AGENCY CONSTANT PREPAYMENT RATES
The actual CPR for the Company's agency portfolio during the fourth quarter was 5%, a slight increase from 4% during the third quarter stub period. The CPR published in January 2012 for the Company's agency portfolio held as December 31, 2011 was 4%. The weighted average projected CPR for the remaining life of the Company's agency investments held as of December 31, 2011 was 11%, an increase from 10% as of September 30, 2011.
The Company amortizes and accretes premiums and discounts associated with purchases of agency securities into interest income over the estimated life of such securities based on actual and projected CPRs, using the effective yield method. The amortization of premiums (net of any accretion of discounts) on the agency portfolio for the quarter was $3.7 million, or $0.37 per share. The weighted average cost basis of the agency portfolio was 105.4% and the unamortized agency net premium was $89 million as of December 31, 2011. As such, slower actual and projected prepayments can have a meaningful positive impact, while faster actual or projected prepayments can have a meaningful negative impact, on the Company's asset yields.
"We are very pleased with the positioning of our agency portfolio since going public," said Chris Kuehl, Senior Vice President of Mortgage Investments. "In addition to producing very strong returns, our agency assets are extremely liquid and I am very confident that we can quickly adjust the size of our agency portfolio in response to changing market opportunities on either the agency or non-agency front."
ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD
During the quarter ended December 31, 2011, the annualized weighted average yield on the Company's average interest earning assets was 3.10% and its annualized weighted average cost of funds was 0.70%, resulting in a weighted average net interest rate spread of 2.40%. This fourth quarter weighted average net interest spread improved upon the 2.13% net interest spread experienced during the third quarter stub period as capital was initially deployed.
As of December 31, 2011, the Company's weighted average net interest rate spread was 2.38%, as compared to 2.36% as of September 30, 2011. The weighted average yield on the Company's interest earning assets rose to 3.06% at December 31, 2011, from 3.01% at September 30, 2011, in connection with portfolio growth during the quarter. The December 31, 2011 weighted average cost of funds was 0.68% compared to 0.65% at September 30, 2011, as higher year-end repo rates were largely offset by reduced swap interest costs.
LEVERAGE AND HEDGING ACTIVITIES
As of December 31, 2011, the Company had total repurchase agreements outstanding of $1.7 billion, resulting in a leverage ratio of 8.2x. When adjusted for repurchase agreements underlying Linked Transactions and the net receivable for securities not yet settled, the leverage ratio was 8.0x as of December 31, 2011. Average leverage during the period of 7.5x is calculated as the daily weighted average repurchase agreement balance outstanding (including Linked Transactions) divided by the average month-ended shareholders' equity for the period.
The $1.7 billion borrowed under repurchase agreements (including Linked Transactions) as of December 31, 2011, had original maturities consisting of:
$87 million of one month or less;
$360 million between one and two months;
$375 million between two and three months;
$785 million between three and four months; and
$136 million greater than four months.
As of December 31, 2011, the Company had repurchase agreements with 22 financial institutions and less than 6% of the Company's equity at risk was with any one counterparty, with the top five counterparties representing less than 21% of the Company's equity at risk.
The Company's interest rate swap positions as of December 31, 2011 totaled $875 million in notional amount (including $50 million of forward of starting swaps, of which $25 million start in February 2012 and $25 million start in May 2012) at a weighted average fixed pay rate of 1.03%, a weighted average receive rate of 0.48% and a weighted average maturity of 4.0 years. The Company enters into interest rate swaps with longer maturities with the intention of protecting its net book value and long term earnings potential.
As of December 31, 2011, 50% of the Company's repurchase agreement balance was hedged through interest rate swap agreements. If net unsettled purchases and sales of securities are incorporated, this percentage increases to 53% as of December 31, 2011.
During the fourth quarter, the Company entered into two forward starting interest rate swaption contracts with a total notional amount of $50 million and a weighted average pay rate of 2.81%. These swaptions have 10-year underlying swap terms, with a weighted average expiration of 0.8 years.
OTHER GAINS (LOSSES), NET
During the quarter, the Company recorded $8.1 million in other gains (losses), net, or $0.81 per share. Other gains (losses) is comprised primarily of $11.8 million on net unrealized gains on agency securities and $1.0 million of net realized gains on agency securities, offset in part by $(3.2) million of net unrealized losses on other derivatives and securities and $(1.2) million in realized loss on periodic settlements of interest rate swaps.
Realized and unrealized gains and losses on other derivatives and securities include the Company's interest rate swaps and short or long positions in "to-be-announced" mortgage securities ("TBA's") and treasury securities, which the Company uses to help manage its risk position.
The Company has elected to record all investments at fair value with all changes in fair value recorded in current GAAP earnings as other gains (losses). In addition, the Company has not designated any derivatives as hedges for GAAP accounting purposes and therefore all changes in the fair value of derivatives are recorded in current GAAP earnings as other gains (losses).
ESTIMATED TAXABLE INCOME
Taxable income for the quarter is estimated at $1.07 per share. The primary difference between tax and GAAP net income are (i) unrealized gains and losses associated with investment and derivative portfolios marked-to-market in current income for GAAP purposes but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of net premiums paid on investments and (iii) timing differences in the recognition of certain realized gains and losses.
NET BOOK VALUE
As of December 31, 2011, the Company's net book value per share was $20.87, or $0.91 per share higher than the net book value per share of $19.96 at September 30, 2011.
FOURTH QUARTER 2011 DIVIDEND DECLARATION
On December 12, 2011, the Board of Directors of the Company declared a fourth quarter dividend of $0.80 per share payable on January 27, 2012, to stockholders of record as of December 22, 2011. Since the August 2011 initial public offering, the Company has paid and declared a total of $10.0 million in dividends, or $1.00 per share. After adjusting for the fourth quarter accrued dividend, the Company had approximately $2.4 million, or $0.24 per share, of undistributed taxable income as of December 31, 2011.
The Company has also announced the tax characteristics of its 2011 dividends. The Company's 2011 dividends of $1.00 per share consisted of $1.00 per share of ordinary income. 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.MTGE.com.
FINANCIAL STATEMENTS, OPERATING PERFORMANCE AND PORTFOLIO STATISTICS
The following measures of operating performance include net spread income and estimated taxable income, which are non-GAAP financial measures. Please refer to "Use of Non-GAAP Financial Information" later in this release for further discussion on non-GAAP measures.
AMERICAN CAPITAL MORTGAGE INVESTMENT CORP. (MTGE)
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