AGNC Investment's (AGNC) Q4 Earnings Beat Estimates, NII Up

AGNC Investment Corp. (NASDAQ:AGNC) reported fourth-quarter 2019 net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) of 57 cents per share, beating the Zacks Consensus Estimate of 53 cents. However, the reported tally comes in lower than the prior-quarter figure of 59 cents per share.

Net interest income (NII) of $287 million comes in higher than the prior-quarter figure of $119 million.

For full-year 2019, net spread and dollar-roll income (excluding estimated catch-up premium amortization benefit) came in at $2.16, ahead of the Zacks Consensus Estimate of $2.12. Further, NII for full-year 2019 was $693 million.

The company reported fourth-quarter comprehensive income per common share of $1.59, significantly higher than the prior-quarter tally of 42 cents per share.

Also, as of Dec 31, 2019, the company’s tangible net book value per share came in at $17.66, up 6.7% from $16.55 as of Sep 30, 2019. Further, it compares favorably with the tangible net book value per share of $16.56 as of Dec 31, 2018.

The economic return on tangible common equity for the company during the reported quarter was 9.6%. This included dividend per share of 48 cents and an increase of $1.11 in tangible net book value per share.

Inside the Headlines

As of Dec 31, 2019, the company’s investment portfolio aggregated $107.9 billion. This included $98.9 billion of agency mortgage backed securities (MBS), $7.4 billion of to-be-announced (TBA) securities, and $1.6 billion of credit risk transfer and non-agency securities.

Inclusive of its net TBA position and net payable/ (receivable) for unsettled securities, AGNC Investment’s tangible net book value "at risk" leverage ratio was 9.4x as of Dec 31, 2019, compared to 9.8x as of Sep 30, 2019.

For the December-end quarter, the company's investment portfolio bore a weighted average constant prepayment rate (CPR) of 15.4%, up from the 13.5% witnessed in third-quarter 2019.

Excluding net TBA position, AGNC Investment's average asset yield on its portfolio, excluding the net TBA position, came in at 3.28% in the fourth quarter, up from the 2.91% recorded in the previous quarter.

For the October-December period, combined average cost of funds inclusive of interest rate swap costs came in at 1.76%, down from the 1.85% witnessed in the previous quarter.

Combined annualized net interest spread (excluding estimated catch- up premium amortization benefit), came in at 1.33%, up from the 1.31% reported in the prior quarter.

Also, as of Dec 31, 2019, AGNC Investment’s cash and cash equivalents totaled $831 million, down from $921 million as of Dec 31, 2018.

Dividend Update

During the fourth quarter, AGNC Investment announced monthly dividend of 16 cents per share for October, November and December, respectively. Notably, the company announced a total of $9.6 billion in common stock dividends or $41.32 per common share since its initial public offering in May 2008 through fourth-quarter 2019.

Conclusion

AGNC Investment has reaped benefits from its strategy to invest in prepay-protected pools and lower coupon TBA securities and MBS, while reducing exposure to generic cohorts with higher pre-payment exposure. In fact, such prudent hedging strategies and continued portfolio-repositioning efforts have cushioned its portfolio from interest-rate risks and high prepayment speed.

However, volatility in the repo markets in 2019 escalated funding costs and dampened performance of many industry participants. In fact, in mid-September, the rate on overnight general collateral repo spiked to 10%, about four times more than usual levels, due to shortage of cash available for lending. Amid this turbulence in the money market, AGNC Investment witnessed sequential decline in fourth-quarter net spread and dollar roll income.

AGNC Investment Corp. Price, Consensus and EPS Surprise

AGNC Investment currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Two Harbors Investment Corp (NYSE:TWO) , Chimera Investment Corporation (NYSE:CIM) and Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) . While Two Harbors is slated to report quarterly numbers on Feb 5, Chimera Investment and Apollo Commercial will release Q4 results on Feb 12 and Feb 13, respectively.

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