American Capital Mortgage Investment Corp. Reports $4.03 Earnings Per Share And $25.21 Net Book Value Per Share

BETHESDA, Md., Oct. 31, 2012 /PRNewswire/ -- American Capital Mortgage Investment Corp. ("MTGE" or the "Company") (Nasdaq: MTGE) today reported net income for the three months ended September 30, 2012 of $146.2 million, or $4.03 per share, and net book value of $25.21 per share.

THIRD QUARTER 2012 FINANCIAL HIGHLIGHTS

  • $4.03 per share of net income 
    • Includes all unrealized gains and losses on investment and hedging portfolios
  • $0.71 per share of net spread income
    • Excludes $3.32 per share of other investment related net gains
  • $1.33 per share of estimated taxable income
  • $0.90 per share dividend declared on September 11, 2012
  • $0.54 per share undistributed estimated taxable income as of September 30, 2012
    • Increased $0.43 per share from $0.11 per share as of June 30, 2012
  • $25.21 per share net book value as of September 30, 2012
    • Increased $3.13 per share from $22.08 per share as of June 30, 2012
  • 72% annualized economic return
    • Comprised of $0.90 per share dividend and $3.13 per share increase in net book value

OTHER THIRD QUARTER 2012 HIGHLIGHTS

  • $6.9 billion investment portfolio value as of September 30, 2012
    • $6,337 million agency investments
    • $553 million non-agency investments
  • 6.6x leverage as of September 30, 2012
    • 6.9x average leverage for the quarter
  • 6.7% agency portfolio actual constant prepayment rate ("CPR") for the quarter
    • 6.9% agency portfolio actual CPR for the month of September 2012
    • 12.7% average projected life CPR for agency securities as of September 30, 2012
  • 1.80% annualized quarterly net interest rate spread
    • 1.88% net interest rate spread as of September 30, 2012

"We are pleased to announce our strongest quarter, in terms of shareholder value creation, since our inception," commented Gary Kain, President and Chief Investment Officer.  "This quarter, MTGE generated an annualized economic (or mark-to-market) return of 72% through net book value growth of $3.13 per share, in addition to $0.90 per share in dividends.  Additionally, prepayments on our portfolio remained well behaved  at less than 7 CPR during the quarter and we remain optimistic about the positioning of the portfolio with respect to prepayments, hedging, and credit as we navigate the unique challenges of the new post-QE3 environment." 

"QE3 has presented both challenges and opportunities," said Malon Wilkus, Chair and Chief Executive  Officer.  "Through active portfolio management we are well positioned for the prepayment environment resulting from QE3; however, as the market has tried to assess and adjust to the impacts of QE3, we have experienced volatility in the price of our stock. Therefore, our board of directors has authorized us to acquire up to $50 million of our shares through December 31, 2013. As prudent stewards of your capital, we will seek to acquire our shares only when it is meaningfully accretive to our net book value per share thereby further enhancing the shareholder value."

INVESTMENT PORTFOLIO

As of September 30, 2012, the Company's investment portfolio totaled $6.9 billion of agency and non-agency securities, at fair value, comprised of $6.3 billion of fixed-rate agency securities and $552.8 million of non-agency securities.  As of September 30, 2012, the Company's investment portfolio was comprised of 31% 15-year fixed-rate agency securities, 2% 20-year fixed-rate agency securities, 59% 30-year fixed-rate agency securities and 8% non-agency securities.

AGENCY CONSTANT PREPAYMENT RATES

"Actual prepayment rates on our portfolio remain well-contained despite historically low interest rates, averaging under 7% CPR during the quarter," said Chris Kuehl, Senior Vice President, Agency Portfolio Investments.

The actual CPR for the Company's agency portfolio during the third quarter of 2012 was 6.7%, compared to 4.7% during the second quarter of 2012. The CPR published in October 2012 for the Company's agency portfolio held as of September 30, 2012 was 6.9%, and the weighted average projected CPR for the remaining life of the Company's agency investments held as of September 30, 2012 was 12.7%. 

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 $12.8 million, or $0.35 per share.  The weighted average cost basis of the agency portfolio was 105.2% and the unamortized agency net premium was $302.1 million as of September 30, 2012. 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 agency asset yields.  

ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD

As of September 30, 2012, the Company's weighted average net interest rate spread was 1.88%, which was down from 1.94% as of June 30, 2012.  The weighted average yield on the Company's interest earning assets decreased 16 bps to 2.78% as of September 30, 2012 from June 30, 2012, while weighted average cost of funds decreased 10 bps to 0.90%.

During the quarter ended September 30, 2012, the annualized weighted average yield on the Company's investments was 2.76% and its annualized weighted average cost of funds was 0.96%, resulting in a weighted average net interest rate spread of 1.80%.  This third quarter weighted average net interest spread fell from the 2.12% net interest spread experienced during the second quarter as asset yields decreased 18 bps and cost of funds increased 14 bps.

LEVERAGE AND HEDGING ACTIVITIES

As of September 30, 2012, the Company had repurchase agreements outstanding of $6.1 billion, resulting in a leverage ratio of 6.7x.  When adjusted for the net receivable for securities not yet settled, the leverage ratio was 6.6x as of September 30, 2012.  Average leverage during the period of 6.9x is calculated as the daily weighted average repurchase agreement balance outstanding divided by the average month-ended shareholders' equity for the period.

The $6.1 billion borrowed under repurchase agreements as of September 30, 2012 had original maturities consisting of:

  • $0.3 billion of one month or less;
  • $0.7 billion between one and two months;
  • $1.2 billion between two and three months;
  • $2.9 billion between three and six months; and
  • $1.0 billion greater than six months.

The Company increased the weighted average original maturity of its repurchase agreements to 101 days as of September 30, 2012, from 83 days as of June 30, 2012.  As of September 30, 2012, the Company's repurchase agreements had a weighted average remaining days to maturity of 60 days, an increase from 52 days as of June 30, 2012.

As of September 30, 2012, the Company had repurchase agreements with 26 financial institutions and less than 7% of the Company's equity at risk was with any one counterparty, with the top five counterparties representing approximately 22% of the Company's equity at risk.

The Company's interest rate swap positions as of September 30, 2012 totaled $2.9 billion in notional amount (including $325.0 million of forward starting swaps commencing November and December 2012) at a weighted average fixed pay rate of 1.33%, a weighted average receive rate of 0.45% and a weighted average maturity of 5.6 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.  As of September 30, 2012, 48% of the Company's repurchase agreement balance was hedged through interest rate swap agreements.

The Company also utilizes interest rate swaptions to mitigate the Company's exposure to changes in interest rates. As of September 30, 2012, the Company held payer swaption contracts with a total notional amount of $500.0 million with a weighted average expiration of 1.8 years.  These swaptions have an underlying weighted average interest rate swap term of 8.5 years, with a weighted average pay rate of 3.43%.

In addition to interest rate swaps and swaptions, the Company held net short positions in U.S. Treasury securities with a face amount of $350.0 million and a net long position in "to-be-announced" mortgage securities ("TBA's") with a face amount of $111.0 million as of September 30, 2012.

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 third quarter, the Company recorded $114.0 million in other gains, net, or $3.14 per share.  Other gains, net, for the quarter are comprised of:

  • $23.6 million of net realized gains on agency securities;
  • $1.0 million of net realized gains on non-agency securities;
  • $95.5 million of net unrealized gains on agency securities;
  • $33.1 million of net unrealized gains on non-agency securities;
  • $(29.1) million of net realized losses on other derivatives and securities;
  • $(3.1) million of net unrealized losses on other derivatives and securities; and
  • $(6.9) 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 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 $1.33 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 September 30, 2012, the Company's net book value per share was $25.21, or $3.13 per share higher than the net book value per share of $22.08 as of June 30, 2012.

THIRD QUARTER 2012 DIVIDEND DECLARATION

On September 11, 2012, the Board of Directors of the Company declared a third quarter dividend of $0.90 per share paid on October 26, 2012, to common stockholders of record as of September 21, 2012. Since the August 2011 initial public offering, the Company has declared and paid a total of $84.3 million in dividends, or $3.70 per share.  After adjusting for the accrued dividend, the Company had approximately $19.4 million, or $0.54 per share, of undistributed estimated taxable income as of September 30, 2012.

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)












September 30, 

2012


June 30, 2012


March 31, 2012


December 31,

 2011



(unaudited)


(unaudited)


(unaudited)


(audited)

Assets:









   Agency securities, at fair value (including
   pledged securities of $6,183,812, $5,121,987,
   $3,652,873 and $1,535,388, respectively)


$   6,337,238


$   5,778,210


$   3,844,747


$   1,740,091

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


552,787


337,645


128,941


25,561

   Linked transactions, at fair value


-


-


16,241


13,671

   Cash and cash equivalents


156,269


153,969


79,161


57,428

   Restricted cash


15,756


20,437


21,187


3,159

   Interest receivable


17,792


16,635


11,103


5,566

   Derivative assets, at fair value


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


344,075


281,475


122,994


50,563

   Other assets


746


557


486


589

  Total assets


$   7,546,299


$   7,028,600


$   4,304,289


$   2,170,322

Liabilities:









   Repurchase agreements


$   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


76,437


64,655


12,266


5,669

   Dividend payable


32,636


32,636


9,011


8,005

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


347,367


280,956


121,889


50,154

   Accounts payable and other accrued liabilities


7,073


3,394


2,874


2,370

  Total liabilities


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, 36,262, 36,262, 22,012
   and 10,006 issued and outstanding,
   respectively


363


363


220


100

   Additional paid-in capital


778,804


778,896


457,255


199,038

   Retained earnings


135,173


21,565


21,972


9,663

  Total stockholders' equity


914,340


800,824


479,447


208,801

  Total liabilities and stockholders' equity


$   7,546,299


$   7,028,600


$   4,304,289


$   2,170,322










 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)












For the Three Months Ended



September 30,

2012


June 30, 2012


March 31, 2012


December 31,

 2011

Interest income:









   Agency securities


$        37,311


$       30,321


$      15,306


$      11,793

   Non-agency securities


6,949


4,298


1,271


468

   Other


95


76


25


25

Interest expense


(7,329)


(4,786)


(1,664)


(1,354)

           Net interest income


37,026


29,909


14,938


10,932










Other gains (losses), net:









   Realized gain on agency securities, net


23,566


17,096


5,971


1,045

   Realized gain on non-agency securities, net


952


-


-


-

   Realized loss on periodic settlements of interest rate swaps, net


(6,855)


(3,815)


(1,041)


(1,166)

   Realized gain (loss) on other derivatives and securities, net


(29,132)


(17,387)


562


(514)

   Unrealized gain on agency securities, net


95,477


65,511


4,006


11,847

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


33,118


(1,023)


2,411


232

   Unrealized gain (loss) and net interest income on linked  transactions, net (1)


-


-


3,384


(155)

   Unrealized loss on other derivatives and securities, net


(3,118)


(54,397)


(6,785)


(3,224)

           Total other gains, net


114,008


5,985


8,508


8,065










 Expenses:









   Management fees


2,945


2,606


1,082


757

   General and administrative expenses


1,415


1,059


1,035


1,005

           Total expenses


4,360


3,665


2,117


1,762










Income before excise tax


146,674


32,229


21,329


17,235

 Excise tax


432


-


9


32

Net income


$      146,242


$       32,229


$      21,320


$      17,203










 Net income per common
 share - basic and diluted


$            4.03


$           1.15


$          1.82


$          1.72










Weighted average number of common shares outstanding - basic and diluted


36,262


28,129


11,724


10,006










Dividends declared per common share


$            0.90


$           0.90


$          0.90


$          0.80










 

 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

RECONCILIATION OF GAAP NET INTEREST INCOME TO NET SPREAD INCOME

(in thousands, except per share data)

(unaudited)












For the Three Months Ended



September 30,

2012


June 30, 2012


March 31, 2012


December 31,

2011

Interest income:









  Agency securities


$      37,311


$      30,321


$      15,306


$      11,793

  Non-agency securities and other


7,044


4,374


1,296


493

Interest expense


(7,329)


(4,786)


(1,664)


(1,354)

 Net interest income


37,026


29,909


14,938


10,932

  Interest income on non-agency securities underlying Linked Transactions


-


-


891


814

  Interest expense on repurchase agreements underlying Linked Transactions


-


-


(183)


(163)

  Realized loss on periodic settlements of interest rate swaps, net


(6,855)


(3,815)


(1,041)


(1,166)

 Adjusted net interest income


30,171


26,094


14,605


10,417

  Operating expenses


(4,360)


(3,665)


(2,117)


(1,762)

 Net spread income


$      25,811


$      22,429


$      12,488


$        8,655










Weighted average number of common shares outstanding - basic and diluted


36,262


28,129


11,724


10,006










 Net spread income per common share – basic and diluted


$          0.71


$          0.80


$          1.07


$          0.86



















 

 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

RECONCILIATION OF GAAP NET INCOME TO ESTIMATED TAXABLE INCOME

(in thousands, except per share data)

(unaudited)












For the Three Months Ended



September 30,

2012


June 30, 2012


March 31, 2012


December 31,

2011

Net income


$      146,242


$      32,229


$       21,320


$       17,203

Book to tax differences:









Unrealized (gains) and losses, net









Agency securities


(95,477)


(65,511)


(4,006)


(11,847)

Non-agency securities


(33,118)


1,023


(2,411)


(232)

Non-agency securities underlying Linked Transactions


-


-


(2,676)


807

Derivatives and other securities


3,118


54,397


6,785


3,224

Premium amortization, net


4,104


3,206


(265)


1,054

Realized (gains) losses


22,846


(441)


(486)


486

Other


373


19


24


43

Total book to tax difference


(98,154)


(7,307)


(3,035)


(6,465)

Estimated taxable income


$        48,088


$      24,922


$       18,285


$       10,738










Weighted average number of common shares outstanding - basic and diluted


36,262


28,129


11,724


10,006










Net taxable income per common share – basic and diluted


$            1.33


$          0.89


$           1.56


$           1.07










 


 

AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

KEY PORTFOLIO STATISTICS*

(in thousands, except per share data)

(unaudited)












For the Three Months Ended



September 30,

2012


June 30, 2012


March 31, 2012


December 31,

2011

Ending agency securities, at fair value


$   6,337,238


$   5,778,210


$   3,844,747


$   1,740,091

Ending agency securities, at cost


$   6,158,427


$   5,694,876


$   3,826,924


$   1,726,274

Ending agency securities, at par


$   5,856,319


$   5,435,087


$   3,674,668


$   1,637,060

Average agency securities, at cost


$   6,011,801


$   4,475,694


$   1,967,996


$   1,602,279

Average agency securities, at par


$   5,726,255


$   4,286,028


$   1,872,616


$   1,512,962










Ending non-agency securities, at fair value(2)


$      552,787


$      337,645


$      180,786


$        75,754

Ending non-agency securities, at cost (2)


$      517,896


$      335,872


$      177,992


$        78,044

Ending non-agency securities, at par (2)


$      879,042


$      559,468


$      286,229


$      135,822

Average non-agency securities, at cost (2)


$      399,704


$      235,875


$      107,491


$        69,172

Average non-agency securities, at par (2)


$      664,628


$      386,021


$      182,900


$      119,929










Average total assets, at fair value


$   7,527,346


$   5,196,997


$   2,269,192


$   1,815,149

Average repurchase agreements (2)


$   5,834,747


$   4,211,603


$   1,894,945


$   1,516,506

Average stockholders' equity


$      851,093


$      652,091


$      279,490


$      202,435










Average coupon (3)


3.32%


3.42%


3.64%


3.91%

Average asset yield (4)


2.76%


2.94%


3.36%


3.10%

Average cost of funds (5)


0.96%


0.82%


0.61%


0.70%

Average net interest rate spread (6)


1.80%


2.12%


2.75%


2.40%

Average actual CPR for agency securities held during the period


6.7%


4.7%


5.7%


5.2%

Average projected life CPR for agency securities as of period end


12.7%


9.5%


7.3%


11.5%

Leverage (average during the period) (7)


6.9x


6.5x


6.8x


7.5x

Leverage (as of period end) (8)


6.6x


6.8x


7.6x


8.0x

Expenses % of average total assets


0.2%


0.3%


0.4%


0.4%

Expenses % of average stockholders' equity


2.0%


2.3%


3.0%


3.5%

Net book value per common share as of period end


$          25.21


$          22.08


$          21.78


$          20.87

Dividends declared per common share


$            0.90


$            0.90


$            0.90


$            0.80

Net return on average stockholders' equity


68.2%


19.8%


30.6%


33.7%










* Average numbers for the each period are weighted based on days on the Company's books and records. All percentages are annualized.


(1) Unrealized gain (loss) and net interest income on linked transactions, net, includes $2.7 million and $(0.8) million in net unrealized gains (losses) and $0.7 million and $0.7 million of net interest income for the three months ended March 31, 2012 and December 31, 2011, respectively.

(2) If the Company purchases investment securities and finances the purchase with a repurchase agreement with the same counterparty that is entered into simultaneously or in contemplation of the purchase, the purchase commitment and repurchase agreement are recorded net for GAAP purposes on the financial statements as a derivative ("Linked Transaction"). As of September 30, 2012, the Company had no Linked Transactions. Fair value of non-agency securities includes $52 million and $50 million, respectively, of non-agency securities recorded as Linked Transactions as of March 31, 2012 and December 31, 2011. The repurchase agreement balances include repurchase agreement financing recorded as Linked Transactions of $36 million and $37 million, respectively, as of March 31, 2012 and December 31, 2011.

(3) Weighted average coupon for the period was calculated by dividing the Company's total stated coupon on securities by the Company's daily weighted average securities held.

(4) Weighted average asset yield for the period was calculated by dividing the Company's total interest income on securities including interest income of securities classified as Linked Transactions on the consolidated statement of operations by the Company's daily weighted average securities held including securities classified as Linked Transactions on the consolidated balance sheet.

(5) Weighted average cost of funds for the period was calculated by dividing the sum of the Company's total interest expense, interest expense on repurchase agreements underlying Linked Transactions on the consolidated statement of operations and periodic settlements of interest rate swaps, by the Company's daily weighted average repurchase agreements for the period, including repurchase agreements classified as Linked Transactions on the consolidated balance sheet.

(6) Weighted average net interest rate spread for the period was calculated by subtracting the Company's weighted average cost of funds from the Company's weighted average asset yield.

(7) Leverage during the period was calculated by dividing the Company's daily weighted average repurchase agreements (including those related to Linked Transactions), for the period by the Company's average month-ended stockholders' equity for the period.

(8) Leverage at period end was calculated by dividing the sum of the amount outstanding under the Company's repurchase agreements, the amount outstanding under repurchase agreements recorded as Linked Transactions and the net receivable/payable for unsettled securities at period end by the Company's stockholders' equity at period end.

 

STOCKHOLDER CALL

MTGE invites shareholders, prospective shareholders and analysts to attend the MTGE shareholder call on November 1, 2012 at 11:00 am ET.  The call can be accessed through a live webcast, free of charge, at www.MTGE.com or by dialing (877) 270-2148 (U.S. domestic) or (412) 902-6510 (international).  Please advise the operator you are dialing in for the American Capital Mortgage shareholder call.  If you do not plan on asking a question on the call and have access to the internet, please take advantage of the webcast. 

A slide presentation will accompany the call and will be available at www.MTGE.com.  Select the Q3 2012 Earnings Presentation link to download and print the presentation in advance of the shareholder call.

An archived audio of the shareholder call combined with the slide presentation will be made available on the MTGE website after the call on November 1.  In addition, there will be a phone recording available from 2:00 pm ET November 1 until 9:00 am ET November 16. If you are interested in hearing the recording of the presentation, please dial (877) 344-7529 (U.S. domestic) or (412) 317-0088 (international).  The conference number is 10019155.

For further information or questions, please contact our Investor Relations Department at (301) 968-9220 or IR@MTGE.com.

ABOUT AMERICAN CAPITAL MORTGAGE INVESTMENT CORP.

American Capital Mortgage Investment Corp. is a real estate investment trust ("REIT") that invests in and manages a leveraged portfolio of agency mortgage investments, non-agency mortgage investments and other mortgage-related investments. The Company is externally managed and advised by American Capital MTGE Management, LLC, an affiliate of American Capital, Ltd. ("American Capital"). For further information please refer to www.MTGE.com.

ABOUT AMERICAN CAPITAL

American Capital is a publicly traded private equity firm and global asset manager. American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate and structured products. American Capital manages $18.6 billion of assets, including assets on its balance sheet and fee earning assets under management by affiliated managers, with $118 billion of total assets under management (including levered assets). From its seven offices in the U.S. and Europe, American Capital and its affiliate, European Capital, will consider investment opportunities from $10 million to $500 million. For further information, please refer to www.AmericanCapital.com.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements.  Forward-looking statements are based on estimates, projections, beliefs and assumptions of management of the Company at the time of such statements and are not guarantees of future performance.  Forward-looking statements involve risks and uncertainties in predicting future results and conditions.  Actual results could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation, changes in interest rates, changes in the yield curve, changes in prepayment rates, the availability and terms of financing, changes in the market value of our assets, general economic conditions, market conditions, conditions in the market for agency and non-agency securities and mortgage related investments, and legislative and regulatory changes that could adversely affect the business of the Company.  Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements, are included in the Company's periodic reports filed with the Securities and Exchange Commission ("SEC").  Copies are available on the SEC's website, www.sec.gov.  The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt or new information, or otherwise.

USE OF NON-GAAP FINANCIAL INFORMATION

In addition to the results presented in accordance with GAAP, this release includes certain non-GAAP financial information, including net spread income, estimated taxable income and certain financial metrics derived from non-GAAP information, such as estimated undistributed taxable income, which the Company's management uses in its internal analysis of results, and believes may be informative to investors.

GAAP interest income does not include interest earned on non-agency securities underlying our Linked Transactions, and GAAP interest expense does not include either interest related to repurchase agreements underlying our Linked Transactions, or periodic settlements associated with undesignated interest rate swaps. Interest income and expense related to Linked Transactions is reported within unrealized loss and net interest income on linked transactions, net and periodic interest settlements associated with undesignated interest rate swaps are reported in realized gain (loss) on periodic settlements of interest rate swaps on our consolidated statement of operations. As we believe that these items are beneficial to the understanding of our investment performance, we provide a non-GAAP measure called adjusted net interest income, which is comprised of net interest income plus the net interest income related to Linked Transactions, less net periodic settlements of interest rates swaps.  Additionally, we present net spread income as a measure of our operating performance.  Net spread income is comprised of adjusted net interest income, less total operating expenses.  Net spread income excludes all unrealized gains or losses due to changes in fair value, realized gains or losses on sales of securities, realized losses associated with derivative instruments and income taxes. 

Estimated taxable income is pre-tax income calculated in accordance with the requirements of the Internal Revenue Code rather than GAAP.  Estimated taxable income differs from GAAP income because of both temporary and permanent differences in income and expense recognition.  Examples include (i) temporary differences for unrealized gains and losses on derivative instruments and investment securities recognized in current income for GAAP but excluded from estimated taxable income until realized or settled, (ii) temporary differences related to the amortization of premiums and discounts paid on investments, and (iii) timing differences in the recognition of certain realized gains and losses.  Furthermore, taxable income can include certain estimated information and is subject to potential adjustments up to the time of filing of the appropriate tax returns, which occurs after the end of the calendar year of the Company. 

The Company believes that these non-GAAP financial measures provide information useful to investors because net spread income is a financial metric used by management and investors and estimated taxable income is directly related to the amount of dividends the Company is required to distribute in order to maintain its REIT tax qualification status. 

The Company also believes that providing investors with our net spread income, estimated taxable income and certain financial metrics derived from such non-GAAP financial information, in addition to the related GAAP measures, gives investors greater transparency to the information used by management in its financial and operational decision-making.  However, because net spread income and estimated taxable income are incomplete measures of the Company's financial performance and involve differences from net income computed in accordance with GAAP, they should be considered as supplementary to, and not as a substitute for, the Company's net income computed in accordance with GAAP as a measure of the Company's financial performance. In addition, because not all companies use identical calculations, our presentation of net spread income and estimated taxable income may not be comparable to other similarly-titled measures of other companies.

CONTACT:
Investors - (301) 968-9220
Media - (301) 968-9400

SOURCE American Capital Mortgage Investment Corp.



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http://www.AmericanCapital.com

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