American Capital Mortgage Investment Corp. Reports $1.40 Net Income Per Share And $25.74 Net Book Value Per Share

BETHESDA, Md., Feb. 8, 2013 /PRNewswire/ -- American Capital Mortgage Investment Corp. ("MTGE" or the "Company") (Nasdaq: MTGE) today reported net income for the quarter ended December 31, 2012 of $50.4 million, or $1.40 per share, and net book value of $25.74 per share.  For the full year, the Company reported a 41% economic return, comprised of $3.60 per share in dividends and a $4.87 per share increase in net book value.

FOURTH QUARTER 2012 FINANCIAL HIGHLIGHTS

  • 23% annualized economic return
    • Comprised of $0.90 per share dividend and $0.53 per share increase in net book value
  • $1.40 per share of net income 
  • $0.84 per share of net spread income
    • Excludes $0.56 per share of other investment related net gains, net of tax
    • $0.78 per share, excluding approximately $0.06 per share of "catch-up" premium amortization benefit due to a change in constant prepayment rate ("CPR") projections
  • $1.53 per share of estimated taxable income
  • $0.90 per share dividend declared on December 14, 2012
  • $1.17 per share of undistributed estimated taxable income as of December 31, 2012
    • Increased $0.63 per share from $0.54 per share as of September 30, 2012
  • $25.74 per share net book value as of December 31, 2012
    • Increased $0.53 per share from $25.21 per share as of September 30, 2012
    • Includes $0.02 per share increase related to share repurchases

ADDITIONAL FOURTH QUARTER 2012 HIGHLIGHTS

  • $7.0 billion investment portfolio fair value as of December 31, 2012
    • $6,367 million agency investments
    • $681 million non-agency investments
  • 6.7x leverage as of December 31, 2012
    • 6.4x average leverage for the quarter
  • 6.5% agency portfolio actual CPR for the quarter
    • 6.3% agency portfolio actual CPR for the month of December 2012
    • 9.3% average projected life CPR for agency securities as of December 31, 2012
  • 2.07% annualized quarterly net interest rate spread
    • 1.88% net interest rate spread as of December 31, 2012
  • 0.3 million shares of common stock repurchased during the quarter
    • $22.76 per share average net repurchase price

2012 FULL YEAR FINANCIAL HIGHLIGHTS

  • 41% annual economic return
    • Comprised of $3.60 per share in dividends and a $4.87 per share increase in net book value
  • $8.90 per share of net income 
  • $3.24 per share of net spread income
    • Excludes $5.66 per share of other investment related net gains, net of tax
  • $5.21 per share of estimated taxable income
    • Undistributed estimated taxable income of $1.17 as of December 31, 2012, up $0.93 per share from $0.24 per share as of December 31, 2011
  • $3.60 per share dividends declared
  • $25.74 per share net book value as of December 31, 2012
    • Increased $4.87 per share from $20.87 per share as of December 31, 2011

"Having completed our first full year as a public company, we are pleased to have delivered a 41% Economic Return to our shareholders," commented Malon Wilkus, Chairman and Chief Executive Officer, American Capital Mortgage. "We prepared for the possibility of QE3 and positioned the portfolio appropriately, allocating more capital to assets less affected by QE3, with more upside to a potential housing recovery."

"We feel good about American Capital Mortgage's 2012 results as we were able to generate $8.47 per share of value for our shareholders through the combination of both dividends and book value growth," said Gary Kain, President and Chief Investment Officer. "As importantly, we accomplished this while maintaining a conservative approach to asset selection, hedging, and use of leverage on the non-agency side of the portfolio. During the fourth quarter of 2012, we produced $1.43 per share of economic return despite the weakness in agency MBS during the quarter, and we grew our estimated undistributed taxable income to $1.17 per share, or $41.9 million at year end. Additionally, our balanced portfolio should allow us to continue to generate attractive returns across a range of different market conditions and also take advantage of favorable financing opportunities on the agency side of the business."

INVESTMENT PORTFOLIO

As of December 31, 2012, the Company's investment portfolio totaled $7.0 billion of agency and non-agency securities, at fair value, comprised of $6.4 billion of fixed-rate agency securities and $681.4 million of non-agency securities.  As of December 31, 2012, the Company's investment portfolio was comprised of 31% 15-year fixed-rate agency securities, 2% 20-year fixed-rate agency securities, 57% 30-year fixed-rate agency securities and 10% non-agency securities.

AGENCY CONSTANT PREPAYMENT RATES

The actual CPR for the Company's agency portfolio during the fourth quarter of 2012 was 6.5%, compared to 6.7% during the third quarter of 2012. The CPR published in January 2013 for the Company's agency portfolio held as of December 31, 2012 was 6.3%, and the weighted average projected CPR for the remaining life of the Company's agency investments held as of December 31, 2012 was 9.3%. 

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 $9.1 million, or $0.25 per share.  The weighted average cost basis of the agency portfolio was 105.5% and the unamortized agency net premium was $325.1 million as of December 31, 2012. As such, before considering any impact of hedging, 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 agency asset yields.

NON-AGENCY DISCOUNT ACCRETION

The weighted average cost basis of the non-agency portfolio was 59% of par as of both December 31, 2012 and September 30, 2012. Discount accretion was $5.8 million and $4.1 million for the three months ended December 31, 2012 and September 30, 2012, respectively. The total net discount remaining was $429.2 million and $361.1 million as of December 31, 2012 and September 30, 2012, respectively, with $300.4 million and $256.1 million designated as credit reserves as of December 31, 2012 and September 30, 2012.

ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD

As of December 31, 2012, the Company's weighted average net interest rate spread was 1.88%, which was down 2 bps from 1.90% as of September 30, 2012.  As of December 31, 2012, the weighted average yield on the Company's interest earning assets was 2.91%, up 11 bps from 2.80% as of  September 30, 2012, while weighted average cost of funds was 1.03%, up 13 bps from 0.90% as of September 30, 2012.

During the quarter ended December 31, 2012, the annualized weighted average yield on the Company's investments was 3.08% and its annualized weighted average cost of funds was 1.01%, resulting in a weighted average net interest rate spread of 2.07%.  This fourth quarter weighted average net interest spread increased 27 bps from the 1.80% average net interest spread during the third quarter, as a 32 bps increase in average assets yields was partially offset by a 5 bps increase in average cost of funds.

LEVERAGE AND HEDGING ACTIVITIES

As of December 31, 2012, the Company had repurchase agreements outstanding of $6.2 billion, resulting in a leverage ratio of 6.7x.   Average leverage during the quarter of 6.4x is calculated as the daily weighted average repurchase agreement balance outstanding divided by the average month-ended shareholders' equity for the period.

The $6.2 billion borrowed under repurchase agreements as of December 31, 2012 had original maturities consisting of:

  • $0.2 billion of one month or less;
  • $1.4 billion between one and two months;
  • $1.7 billion between two and three months;
  • $2.3 billion between three and six months; and
  • $0.6 billion greater than six months.

The Company decreased the weighted average original maturity of its repurchase agreements to 87 days as of December 31, 2012, from 101 days as of September 30, 2012.  As of December 31, 2012, the Company's repurchase agreements had a weighted average remaining days to maturity of 50 days, a decrease from 60 days as of September 30, 2012.

As of December 31, 2012, the Company had repurchase agreements with 29 financial institutions and less than 8% of the Company's equity at risk was with any one counterparty, with the top five counterparties representing less than 26% of the Company's equity at risk.

The Company's interest rate swap positions as of December 31, 2012 totaled $2.9 billion in notional amount (including $50 million of forward starting swaps commencing April 2013) at a weighted average fixed pay rate of 1.33%, a weighted average receive rate of 0.32% and a weighted average maturity of 5.5 years.  The Company enters into interest rate swaps with longer maturities with the intention of protecting its net book value and longer term earnings potential. 

The Company also utilizes interest rate swaptions to mitigate the Company's exposure to changes in interest rates. As of December 31, 2012, the Company held payer swaption contracts with a total notional amount of $1.2 billion and a weighted average expiration of 2.4 years.  These swaptions have an underlying weighted average interest rate swap term of 7.9 years, with a weighted average pay rate of 3.12%.

In addition to interest rate swaps and swaptions, the Company held net short positions in U.S. Treasury securities with a face amount of $0.4 billion and a net short position in "to-be-announced" mortgage securities ("TBA's") with a face amount of $0.5 billion as of December 31, 2012. 

As of December 31, 2012, 80% of the Company's repurchase agreement balance was hedged through interest rate swaps, interest rate swaptions, and net short positions in U.S. Treasury securities and TBA's.

OTHER GAINS (LOSSES), NET

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).

During the fourth quarter, the Company recorded $14.2 million in other gains, net, or $0.39 per share.  Other gains, net, for the quarter are comprised of:

  • $27.0 million of net realized gain on agency securities;
  • $0.8 million of net realized gain on non-agency securities;
  • $(41.5) million of net unrealized loss on agency securities;
  • $29.8 million of net unrealized gain on non-agency securities;
  • $(6.7) million in realized loss on periodic settlements of interest rate swaps;
  • $(0.8) million of net realized loss on other derivatives and securities; and
  • $5.6 million of net unrealized gain on other derivatives and securities.

Realized and unrealized gains and losses on other derivatives and securities include the Company's interest rate swaps and swaptions and short or long positions in TBA's and treasury securities, which the Company uses to help manage its risk position.

ESTIMATED TAXABLE INCOME

Taxable income for the quarter is estimated at $1.53 per share. The primary differences 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, 2012, the Company's net book value per share was $25.74, or $0.53 per share higher than the net book value per share of $25.21 as of September 30, 2012. During November 2012, the Company repurchased 0.3 million shares of common stock at an average net repurchase price of $22.76 per share.  These share repurchases at prices below net book value resulted in a $0.02 per share accretion in net book value.

FOURTH QUARTER 2012 DIVIDEND DECLARATION

On December 14, 2012, the Board of Directors of the Company declared a fourth quarter dividend of $0.90 per share paid on January 28, 2013, to common stockholders of record as of December 27, 2012. Since the August 2011 initial public offering, the Company has declared and paid a total of $116.7 million in dividends, or $4.60 per share. 

After adjusting for the accrued dividend, the Company had approximately $41.9 million, or $1.17 per share, of undistributed estimated taxable income as of December 31, 2012.

The Company also announced the tax characteristics of its 2012 dividends. The Company's 2012 common stock dividend of $3.60 per share consisted of 100% ordinary income 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.MTGE.com.

FINANCIAL STATEMENTS, OPERATING PERFORMANCE AND PORTFOLIO STATISTICS

The following tables include certain measures of operating performance, such as 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 of non-GAAP measures.

 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(in thousands)














December

31, 2012


September

30, 2012


June

30, 2012


March

31, 2012


December

31, 2011



(unaudited)


(unaudited)


(unaudited)


(unaudited)


(audited)

Assets:











   Agency securities, at fair value (including

   pledged securities of $6,276,993,
   $6,183,812, $5,121,987, $3,652,873 and
   $1,535,388 respectively)


$     6,367,042


$      6,337,238


$     5,778,210


$        3,844,747


$              1,740,091

   Non-agency securities, at fair value 
   (including pledged securities of $545,665,
   $352,840, $250,936, $79,202 and $8,626
   respectively)


681,403


552,787


337,645


128,941


25,561

   Linked transactions, at fair value





16,241


13,671

   Cash and cash equivalents


157,314


156,269


153,969


79,161


57,428

   Restricted cash


28,493


15,756


20,437


21,187


3,159

   Interest receivable


18,265


17,792


16,635


11,103


5,566

   Derivative assets, at fair value


23,043


15,030


4,848


6,178


1,845

   Receivable for securities sold



106,606


434,824


73,251


271,849

   Receivable under reverse repurchase

   agreements


418,888


344,075


281,475


122,994


50,563

   Other assets


1,692


746


557


486


589

Total assets


$     7,696,140


$      7,546,299


$     7,028,600


$        4,304,289


$              2,170,322

Liabilities:











   Repurchase agreements


$     6,245,791


$      6,117,783


$     5,399,160


$        3,567,398


$              1,706,281

   Payable for securities purchased



50,663


446,975


111,404


189,042

   Derivative liabilities, at fair value


63,726


76,437


64,655


12,266


5,669

   Dividend payable


32,368


32,636


32,636


9,011


8,005

   Obligation to return securities borrowed

   under reverse repurchase agreements,

   at fair value


421,077


347,367


280,956


121,889


50,154

   Accounts payable and other accrued 

   liabilities


7,616


7,073


3,394


2,874


2,370

Total liabilities


6,770,578


6,631,959


6,227,776


3,824,842


1,961,521

Stockholders' equity:











   Preferred stock, $0.01 par value; 50,000  

   shares authorized, 0 shares issued and

   outstanding, respectively 






   Common stock, $0.01 par value; 300,000

   shares authorized, 35,964, 36,262, 36,262

   22,012 and 10,006 issued and outstanding,

   respectively


360


363


363


220


100

   Additional paid-in capital


772,008


778,804


778,896


457,255


199,038

   Retained earnings


153,194


135,173


21,565


21,972


9,663

Total stockholders' equity


925,562


914,340


800,824


479,447


208,801

Total liabilities and stockholders'

equity


$     7,696,140


$      7,546,299


$     7,028,600


$        4,304,289


$              2,170,322












Net book value per common share


$            25.74


$             25.21


$            22.08


$               21.78


$                     20.87












 

 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)












For the Three Months

 Ended December 31, 


For the Year

Ended

December 31,

2012


For the Period

from August 9,

2011

(date operations

commenced)

through

December 31, 2011



2012


2011





(unaudited)


(unaudited)


(unaudited)


(audited)

Interest income:









Agency securities


$      39,144


$          11,793


$              122,082


$                    15,832

Non-agency securities


10,511


468


23,029


533

Other


113


25


309


49

 Interest expense


(8,288)


(1,354)


(22,067)


(1,737)

Net interest income


41,480


10,932


123,353


14,677










 Other gains (losses), net:









 Realized gain on agency securities, net


26,977


1,045


73,610


3,437

 Realized gain on non-agency securities, net


828



1,780


 Realized loss on periodic settlements of

 interest rate swaps, net


(6,747)


(1,166)


(18,458)


(1,743)

 Realized loss on other derivatives and securities, net


(791)


(514)


(46,748)


(3,856)

 Unrealized gain (loss) on agency securities, net


(41,538)


11,847


123,456


13,817

 Unrealized gain (loss) on non-agency securities, net


29,804


232


64,310


(433)

 Unrealized gain (loss) and net interest income on

 linked transactions, net



(155)


3,384


(1,050)

 Unrealized gain (loss) on other derivatives and

 securities, net


5,631


(3,224)


(58,669)


(2,405)

Total other gains, net


14,164


8,065


142,665


7,767










 Expenses:









Management fees


3,005


757


9,638


1,188

General and administrative expenses


1,509


1,005


5,018


1,555

Total expenses


4,514


1,762


14,656


2,743










Income before excise tax


51,130


17,235


251,362


19,701

 Excise tax


741


32


1,182


32

Net income


$      50,389


$          17,203


$              250,180


$                    19,669










 Net income per common share - basic and diluted


$          1.40


$              1.72


$                    8.90


$                        1.97










Weighted average number of common shares

outstanding - basic and diluted


36,105


10,006


28,100


10,006










Dividends declared per common share


$          0.90


$              0.80


$                    3.60


$                        1.00










 

 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

RECONCILIATIONS OF GAAP NET INTEREST INCOME TO NET SPREAD INCOME

(in thousands, except per share data)

(unaudited)














For the Three Months Ended


For the Year

Ended

December 31,

2012



December

31, 2012


September

30, 2012


June

30, 2012


March

31, 2012


Interest income:











Agency securities


$           39,144


$             37,311


$      30,321


$      15,306


$          122,082

Non-agency securities and other


10,624


7,044


4,374


1,296


23,338

Interest expense


(8,288)


(7,329)


(4,786)


(1,664)


(22,067)

Net interest income


41,480


37,026


29,909


14,938


123,353

Net interest income on non-agency securities

underlying Linked Transactions





708


708

Realized loss on periodic settlements of interest

rate swaps, net


(6,747)


(6,855)


(3,815)


(1,041)


(18,458)

Adjusted net interest income


34,733


30,171


26,094


14,605


105,603

Operating expenses


(4,514)


(4,360)


(3,665)


(2,117)


(14,656)

Net spread income


$           30,219


$             25,811


$      22,429


$      12,488


$            90,947












Weighted average number of common shares

outstanding - basic and diluted


36,105


36,262


28,129


11,724


28,100












Net spread income per common share –

basic and diluted


$               0.84


$                 0.71


$          0.80


$          1.07


$                3.24












 

 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

RECONCILIATIONS OF GAAP NET INCOME TO ESTIMATED TAXABLE INCOME

(in thousands, except per share data)

(unaudited)














For the Three Months Ended


For the Year

Ended

December 31,

2012



December

31, 2012


September

30, 2012


June

30, 2012


March

31, 2012


Net income


$               50,389


$           146,242


$      32,229


$      21,320


$        250,180

Estimated book to tax differences:











Unrealized (gains) and losses, net











Agency securities


41,538


(95,477)


(65,511)


(4,006)


(123,456)

Non-agency securities


(29,804)


(33,118)


1,023


(2,411)


(64,310)

Non-agency securities underlying Linked

Transactions





(2,676)


(2,676)

Derivatives and other securities


(5,631)


3,118


54,397


6,785


58,669

Premium amortization, net


297


4,104


3,206


(265)


7,342

Realized (gains) losses


(2,404)


22,846


(441)


(486)


19,515

Excise tax and other


750


373


19


24


1,166

Total book to tax difference


4,746


(98,154)


(7,307)


(3,035)


(103,750)

Estimated taxable income


$               55,135


$             48,088


$      24,922


$      18,285


$        146,430












Weighted average number of common shares

outstanding - basic and diluted


36,105


36,262


28,129


11,724


28,100












Net estimated taxable income per common share –

basic and diluted


$                   1.53


$                 1.33


$          0.89


$          1.56


$              5.21