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 strong fourth quarter 2009 results despite challenging market conditions.
The company reported earnings of $1.79 per share during the quarter, compared to 73 cents in the year-earlier quarter, with an annualized return on equity of 30.3%. For full year 2009, American Capital reported earnings of $6.78 per share with an annualized return on equity of 31.8%. The company recorded 61% economic return for full year 2009. Economic Return is calculated using the dividends declared during the year plus the increase in net asset value over the beginning net asset value.
As of Dec 31, 2009, American Capital’s investment portfolio comprised of $4.3 billion agency securities at fair value, including $1.9 billion fixed-rate securities and $1.7 billion adjustable-rate securities. About 36% of the investment portfolio comprised of 30-year fixed-rate securities, 2% of 40-year fixed rate securities, 6% of 15-year fixed-rate securities, 40% of adjustable-rate securities, and 16% of CMOs backed by fixed and adjustable-rate securities.
The investment portfolio of the company was financed with $3.8 billion of repurchase agreements and $0.5 billion of equity capital, resulting in a leverage ratio of 7.0x. During the quarter, American Capital reduced its exposure to higher coupon securities, which had a relatively high risk of prepayments related to GSE (government sponsored enterprise) buyouts, by selling a significant amount of them.
During the quarter, American Capital completed its second common equity offering since its initial public offering in May 2008. The company issued 5 million common shares at $26.60 each, raising net proceeds of approximately $127 million. The company also declared a fourth quarter dividend of $1.40 per share, which equates to a total of $134 million in dividends or $7.66 per share since its initial public offering. American Capital is one of only a few companies to have increased its dividend during the economic downturn.
American Capital’s weighted average net interest spread was 2.63% during the quarter. As of Dec 31, 2009, the company had a net interest spread of 2.43%. At year-end 2009, the company had cash and cash equivalents of $202.8 million compared to $56.0 million in the year-ago period. As of Dec 31, 2009, the net asset value of the company was $22.48 per share.
We maintain our Outperform recommendation of the stock.
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