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AGNC Investment Corp. Announces Fourth Quarter 2020 Financial Results

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BETHESDA, Md., Jan. 25, 2021 /PRNewswire/ --  AGNC Investment Corp. ("AGNC" or the "Company") (Nasdaq: AGNC) today announced financial results for the quarter ended December 31, 2020.

FOURTH QUARTER 2020 FINANCIAL HIGHLIGHTS

  • $1.16 comprehensive income per common share, comprised of:
    • $1.37 net income per common share
    • $(0.21) other comprehensive loss ("OCI") per common share on investments marked-to-market through OCI
  • $0.75 net spread and dollar roll income per common share, excluding estimated "catch-up" premium amortization cost 1
    • Includes $0.32 per common share of dollar roll income associated with the Company's $33.8 billion average net long position in forward purchases and sales of Agency mortgage-backed securities ("MBS") in the "to-be-announced" ("TBA") market
    • Excludes $(0.20) per common share of estimated "catch-up" premium amortization cost due to change in projected constant prepayment rate ("CPR") estimates
  • $16.71 tangible net book value per common share as of December 31, 2020
    • Increased $0.83 per common share, or 5.2%, from $15.88 per common share as of September 30, 2020
  • $0.36 dividends declared per common share for the fourth quarter
  • 7.5% economic return on tangible common equity for the quarter
    • Comprised of $0.36 dividends per common share and $0.83 increase in tangible net book value per common share

OTHER FOURTH QUARTER HIGHLIGHTS

  • $97.9 billion investment portfolio as of December 31, 2020, comprised of:
    • $65.1 billion Agency MBS
    • $31.5 billion net TBA mortgage position
    • $1.3 billion credit risk transfer ("CRT") and non-Agency securities
  • 8.5x tangible net book value "at risk" leverage as of December 31, 2020
    • 8.4x average tangible net book value "at risk" leverage for the quarter
  • Cash and unencumbered Agency MBS totaled approximately $5.4 billion as of December 31, 2020
    • Excludes unencumbered CRT and non-Agency securities and assets held at the Company's broker-dealer subsidiary, Bethesda Securities
  • 27.6% portfolio CPR for the quarter
    • 17.6% average projected portfolio CPR as of December 31, 2020
  • 2.02% annualized net interest spread and TBA dollar roll income for the quarter, excluding estimated "catch-up" premium amortization cost
    • Excludes -47 bps of "catch-up" premium amortization cost due to change in projected CPR estimates
  • 6.6 million shares, or $101 million, of common stock repurchased during the quarter 2
    • Represents 1.2% of common stock outstanding as of September 30, 2020
    • $15.32 per share average repurchase price, inclusive of transaction costs

2020 FULL YEAR HIGHLIGHTS

  • $0.47 comprehensive income per common share, comprised of:
    • $(0.66) net loss per common share
    • $1.13 OCI per common share
  • $2.70 net spread and dollar roll income per common share, excluding estimated "catch-up" premium amortization cost 1
    • Includes $0.77 per common share of dollar roll income
    • Excludes $(0.83) per common share of estimated "catch-up" amortization cost
  • $1.56 in dividends declared per common share
  • 3.5% economic return on tangible common equity for the year, comprised of:
    • $1.56 dividends per common share
    • $(0.95) decrease in tangible net book value per common share, or (5.4)%, from $17.66 per common share as of December 31, 2019
  • (1.6)% total stock return
  • $1.4 billion of accretive capital transactions during the year
    • $439 million of At-the-Market common equity offerings, net of offering costs
    • $402 million of common share repurchases, net of repurchase costs
    • $575 million of 6.125% fixed-to-floating rate preferred equity issued in February

___________

  1. Represents a non-GAAP measure. Please refer to a reconciliation to the most applicable GAAP measure and additional information regarding the use of non-GAAP financial information later in this release.
  2. Includes share repurchases settling in January 2021.

MANAGEMENT REMARKS
"In the fourth quarter, AGNC maintained the positive momentum of the prior two quarters, generating a 7.5% economic return on tangible common equity for our shareholders," said Gary Kain, the Company's Chief Executive Officer and Chief Investment Officer.  "This strong performance drove an economic return for the year ended December 31, 2020 of 3.5%, a remarkable result considering the extraordinarily difficult market conditions that we faced in March as a result of the COVID-19 pandemic.  These results once again demonstrate the importance and value of AGNC's disciplined investment framework and best-in-class risk management.  Moreover, the experience of 2020 clearly illustrates the unique value of a predominately Agency MBS portfolio.  In times of significant market stress, the Federal Reserve (the "Fed") has repeatedly shown a commitment to support and stabilize the U.S. housing finance system, and 2020 was no exception, as the Fed purchased $1.5 trillion of Agency MBS during the year.  Against this backdrop, the active management of our portfolio ultimately facilitated the recovery of substantially all of the tangible net asset value decline experienced in the first quarter.

"Although economic headwinds associated with the pandemic remain, longer-term interest rates increased modestly during the fourth quarter, and the yield curve steepened.  The yield on the 10-year U.S. Treasury ended the quarter at 0.92%, an increase of 23 basis points from the prior quarter and 41 basis points above the intra-year low, while two-year Treasury rates remained relatively unchanged.  This uptick in longer term interest rates, should it continue, will ultimately lead to a more benign prepayment environment for mortgages.  While Agency MBS have appreciated along with the vast majority of financial assets over the past several quarters, significant Fed purchases, the potential for slower prepayments, and attractive funding levels that will likely remain for an extended period of time should continue to support the risk/return equation for levered investors in Agency MBS."

"The favorable earnings environment for levered Agency MBS investments continued during the quarter, as evidenced by AGNC's strong economic returns and our $0.75 of net spread and dollar roll income, excluding 'catch-up' amortization cost," said Peter Federico, the Company's President and Chief Operating Officer.  "Mortgage supply dynamics, together with the Fed's significant purchase activity, continued to result in attractive return opportunities in the TBA dollar roll market, though the incremental benefit of these positions has begun to revert to levels more in line with historical averages.  Importantly, AGNC generated this strong net spread and dollar roll income despite operating with lower average tangible 'at risk' leverage during the quarter of 8.4x, down from 8.9x in the third quarter.  In addition, consistent with our commitment to disciplined risk management, our hedge ratio increased further in the fourth quarter, ending the year at 80%, a very meaningful increase from the intra-year low of 66% at the end of the second quarter.   

"Finally, we repurchased $101 million, or over 6.6 million shares, of our common stock during the fourth quarter at accretive levels.  For the full year, our common stock repurchases totaled approximately $402 million, or nearly 30 million shares, demonstrating our commitment to shareholder-friendly capital markets activities."

TANGIBLE NET BOOK VALUE PER COMMON SHARE
As of December 31, 2020, the Company's tangible net book value per common share was $16.71 per share, an increase of 5.2% for the quarter, compared to $15.88 per share as of September 30, 2020.  The Company's tangible net book value per common share excludes $526 million, or $0.97 and $0.96 per share, of goodwill as of December 31, 2020 and September 30, 2020, respectively.

INVESTMENT PORTFOLIO
As of December 31, 2020, the Company's investment portfolio totaled $97.9 billion, comprised of:

  • $96.6 billion of Agency MBS and TBA securities, including:
    • $96.1 billion of fixed-rate securities, comprised of:
      • $52.7 billion 30-year MBS,
      • $24.5 billion 30-year TBA securities,
      • $9.5 billion 15-year MBS,
      • $7.0 billion 15-year TBA securities, and
      • $2.5 billion 20-year MBS; and
    • $0.5 billion of collateralized mortgage obligations ("CMOs"), adjustable-rate and other Agency securities; and
  • $1.3 billion of CRT and non-Agency securities.

As of December 31, 2020, 30-year and 15-year fixed-rate Agency securities represented 79% and 17%, respectively, unchanged as of September 30, 2020.

As of December 31, 2020, the Company's fixed-rate securities' weighted average coupon was 2.89%, compared to 3.08% as of September 30, 2020, comprised of the following weighted average coupons:

  • 3.06% for 30-year fixed-rate securities;
  • 2.16% for 15-year fixed rate securities; and
  • 2.58% for 20-year fixed-rate securities.

The Company accounts for TBA securities (or "dollar roll funded assets") as derivative instruments and recognizes dollar roll income in other gain (loss), net on the Company's financial statements.  As of December 31, 2020, the Company's TBA position had a fair value of $31.5 billion and a GAAP net carrying value of $275 million reported in derivative assets/(liabilities) on the Company's balance sheet, compared to $29.5 billion and $76 million, respectively, as of September 30, 2020.

CONSTANT PREPAYMENT RATES
The Company's investment portfolio had a weighted average CPR of 27.6% for the fourth quarter, compared to 24.3% for the prior quarter.  The weighted average projected CPR for the remaining life of the Company's Agency securities held as of December 31, 2020 increased to 17.6% from 15.9% as of September 30, 2020 largely due to lower primary mortgage rates.

The weighted average cost basis of the Company's investment portfolio was 104.0% of par value as of December 31, 2020.  Net premium amortization cost on the Company's investment portfolio for the fourth quarter was $(266) million, or $(0.49) per common share, which includes "catch-up" premium amortization cost of $(107) million, or $(0.20) per common share, due to changes in the Company's projected CPR estimates for securities acquired prior to the fourth quarter.  This compares to net premium amortization cost for the prior quarter of $(209) million, or $(0.38) per common share, including a "catch-up" premium amortization cost of $(50) million, or $(0.09) per common share.

ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD
The Company's average asset yield on its investment portfolio, excluding the TBA position, was 1.64% for the fourth quarter, compared to 2.28% for the prior quarter.  Excluding "catch-up" premium amortization, the Company's average asset yield was 2.39% for the fourth quarter, compared to 2.59% for the prior quarter. Including the TBA position and excluding "catch-up" premium amortization, the Company's average asset yield for the fourth quarter was 2.07%, compared to 2.30% for the prior quarter.

For the fourth quarter, the weighted average interest rate on the Company's Agency repurchase agreements was 0.38%, compared to 0.40% for the prior quarter.  For the fourth quarter, the Company's TBA position had an implied financing benefit of (0.54)%, compared to a benefit of (0.58)% for the prior quarter.  Inclusive of interest rate swaps, the Company's combined average cost of funds for the fourth quarter was 0.05%, compared to 0.15% for the prior quarter. 

The Company's annualized net interest spread, including the TBA position and interest rate swaps and excluding "catch-up" premium amortization, for the fourth quarter was 2.02%, compared to 2.15% for the prior quarter. 

NET SPREAD AND DOLLAR ROLL INCOME
The Company recognized net spread and dollar roll income (a non-GAAP financial measure) for the fourth quarter of $0.75 per common share, excluding $(0.20) per common share of "catch-up" premium amortization cost, compared to $0.81 per common share for the prior quarter, excluding $(0.09) per common share of "catch-up" premium amortization cost.

A reconciliation of the Company's net interest income to net spread and dollar roll income and additional information regarding the Company's use of non-GAAP measures are included later in this release.

LEVERAGE
As of December 31, 2020, $52.4 billion of Agency repurchase agreements, $31.2 billion of TBA dollar roll positions (at cost) and $0.2 billion of other debt were used to fund the Company's investment portfolio.  Inclusive of its TBA position and net payable/(receivable) for unsettled investment securities, the Company's tangible net book value "at risk" leverage ratio was 8.5x as of December 31, 2020, compared to 8.8x as of September 30, 2020.  The Company's average "at risk" leverage for the fourth quarter was 8.4x tangible net book value, compared to 8.9x for the prior quarter.

As of December 31, 2020, the Company's Agency repurchase agreements had a weighted average interest rate of 0.24%, compared to 0.37% as of September 30, 2020, and a weighted average remaining maturity of 54 days, compared to 55 days as of September 30, 2020.  As of December 31, 2020, $24.6 billion, or 47%, of the Company's Agency repurchase agreements were funded through the Company's captive broker-dealer subsidiary, Bethesda Securities, LLC.

As of December 31, 2020, the Company's Agency repurchase agreements had remaining maturities of:

  • $42.9 billion of three months or less;
  • $7.3 billion from three to six months; and
  • $2.1 billion from six to twelve months.

HEDGING ACTIVITIES
As of December 31, 2020, interest rate swaps, swaptions and U.S. Treasury positions equaled 80% of the Company's outstanding balance of Agency repurchase agreements, TBA position and other debt, compared to 71% as of September 30, 2020.

As of December 31, 2020, the Company's interest rate swap position totaled $43.2 billion in notional amount, compared to $43.0 billion as of September 30, 2020.  As of December 31, 2020, the Company's interest rate swap portfolio had an average fixed pay rate of 0.15%, an average receive rate of 0.08% and an average maturity of 5.1 years, compared to 0.15%, 0.08% and 5.3 years, respectively, as of September 30, 2020.  As of December 31, 2020, 71% and 29% of the Company's interest rate swap portfolio were linked to the Secured Overnight Financing Rate ("SOFR") and Overnight Index Swap Rate ("OIS"), respectively, compared to 69% and 31%, respectively, as of September 30, 2020.

As of December 31, 2020, the Company had payer swaptions outstanding totaling $10.4 billion, compared to $6.9 billion as of September 30, 2020.  As of December 31, 2020, the Company had net short U.S. Treasury positions outstanding totaling $13.1 billion, compared to $9.8 billion as of September 30, 2020.

OTHER GAIN (LOSS), NET
For the fourth quarter, the Company recorded a net gain of $617 million in other gain (loss), net, or $1.13 per common share, compared to a net gain of $381 million, or $0.69 per common share, for the prior quarter.  Other gain (loss), net for the fourth quarter was comprised of:

  • $133 million of net realized gains on sales of investment securities;
  • $(192) million of net unrealized losses on investment securities measured at fair value through net income;
  • $(7) million of interest rate swap periodic costs;
  • $276 million of net gains on interest rate swaps;
  • $(7) million of net losses on interest rate swaptions;
  • $117 million of net gains on U.S. Treasury positions;
  • $176 million of TBA dollar roll income;
  • $125 million of net mark-to-market gains on TBA securities; and
  • $(4) million of other miscellaneous losses.

OTHER COMPREHENSIVE LOSS
During the fourth quarter, the Company recorded an other comprehensive loss of $(115) million, or $(0.21) per common share, consisting of net unrealized losses on the Company's Agency securities recognized through OCI, compared to $70 million, or $0.13 per common share, of other comprehensive income for the prior quarter.

COMMON STOCK DIVIDENDS
During the fourth quarter, the Company declared dividends of $0.12 per share to common stockholders of record as of October 30, November 30 and December 31, 2020, respectively, totaling $0.36 per share for the quarter, which were paid on November 10 and December 9, 2020 and January 12, 2021, respectively.  Since its May 2008 initial public offering through the fourth quarter of 2020, the Company has declared a total of $10.4 billion in common stock dividends, or $42.88 per common share.

The Company also announced the tax characteristics of its 2020 common stock dividends. The Company's distributions of $1.72 per common share for dividends declared during December 2019 and the twelve-month period ended December 31, 2020 consisted of $0.560492 ordinary dividend distributions and $1.159508 capital gain distributions per common share for federal income tax purposes.  Pursuant to rules promulgated under the Internal Revenue Code, the dividend distributions to common stockholders of record as of December 31, 2019 and December 31, 2020 of $0.16 and $0.12 per common share, respectively, which were paid on January 10, 2020 and January 12, 2021, respectively, are both reported as 2020 distributions 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 details, including the tax characteristics of the Company's distributions for dividends paid during the twelve month period ended December 31, 2020 on each series of its preferred stock, please visit the Company's website at www.AGNC.com.

STOCK REPURCHASE PROGRAM
During the fourth quarter, the Company repurchased 6.6 million shares, or $101 million, of its common stock for an average repurchase price of $15.32 per common share, inclusive of transaction costs.  As of December 31, 2020, $0.9 billion of common stock remained available for repurchase pursuant to its stock repurchase program through December 31, 2021.

The Company may repurchase shares in the open market or privately negotiated transactions or pursuant to a trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.  The Company intends to repurchase shares of its common stock under the stock repurchase program only when the repurchase price is less than its then-current estimate of its tangible net book value per common share.

FINANCIAL STATEMENTS, OPERATING PERFORMANCE AND PORTFOLIO STATISTICS
The following measures of operating performance include net spread and dollar roll income; net spread and dollar roll income, excluding "catch-up" premium amortization; economic interest income; economic interest expense; estimated taxable income; and the related per common share measures and financial metrics derived from such information, 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.

 

AGNC INVESTMENT CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)












December 31,


September 30, 


June 30,


March 31,


December 31,


2020


2020


2020


2020


2019


(unaudited)


(unaudited)


(unaudited)


(unaudited)



Assets:










   Agency securities, at fair value (including pledged securities of 
   $53,698, $55,711, $69,956, $64,154 and $92,608, respectively)

$                 64,836


$                 66,556


$                 75,488


$                 70,292


$                 98,516

   Agency securities transferred to consolidated variable interest entities, 
   at fair value (pledged securities)

295


323


344


358


371

   Credit risk transfer securities, at fair value (including pledged securities 
   of $455, $413, $479, $360 and $309, respectively)

737


653


712


574


976

   Non-Agency securities, at fair value (including pledged securities of 
   $458, $455, $511, $437 and $0, respectively)

546


512


599


552


579

   U.S. Treasury securities, at fair value (including pledged securities of 
   $0, $0, $1,136, $3,721 and $97, respectively)

-


-


1,181


3,721


97

   Cash and cash equivalents

1,017


857


859


1,289


831

   Restricted cash

1,307


1,557


1,306


1,978


451

   Derivative assets, at fair value

391


130


140


664


190

   Receivable for investment securities sold (including pledged securities 
   of $207, $10, $480, $0 and $0, respectively)

210


10


489


-


-

   Receivable under reverse repurchase agreements

11,748


8,625


7,944


4,938


10,181

   Goodwill

526


526


526


526


526

   Other assets

204


219


265


245


364

       Total assets

$                 81,817


$                 79,968


$                 89,853


$                 85,137


$               113,082

Liabilities:










   Repurchase agreements

$                 52,366


$                 54,566


$                 69,685


$                 66,540


$                 89,182

   Debt of consolidated variable interest entities, at fair value

177


192


204


214


228

   Payable for investment securities purchased

6,157


5,887


1,468


3,273


2,554

   Derivative liabilities, at fair value

2


13


3


138


6

   Dividends payable

90


90


92


113


104

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

11,727


8,372


7,929


4,886


9,543

   Accounts payable and other liabilities

219


128


122


175


424

       Total liabilities

70,738


69,248


79,503


75,339


102,041

Stockholders' equity:










   Preferred Stock - aggregate liquidation preference of $1,538, $1,538
   $1,538, $1,538 and $963, respectively)

1,489


1,489


1,489


1,489


932

   Common stock - $0.01 par value; 539.5, 545.2, 555.5, 567.7 and 540.9 
   shares issued and outstanding, respectively

5


5


6


6


5

   Additional paid-in capital

13,972


14,053


14,191


14,334


13,893

   Retained deficit

(5,106)


(5,661)


(6,100)


(6,592)


(3,886)

   Accumulated other comprehensive income

719


834


764


561


97

       Total stockholders' equity

11,079


10,720


10,350


9,798


11,041

       Total liabilities and stockholders' equity

$                 81,817


$                 79,968


$                 89,853


$                 85,137


$               113,082











Tangible net book value per common share 1

$                   16.71


$                   15.88


$                   14.92


$                   13.62


$                   17.66

 

 

AGNC INVESTMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)












Three Months Ended


Year Ended


December 31,


September 30, 


June 30,


March 31,


December 31,


2020


2020


2020


2020


2019

Interest income:










   Interest income

$                      235


$                      364


$                      429


$                      491


$                   1,519

   Interest expense

52


62


134


426


674

 Net interest income

183


302


295


65


845

Other gain (loss), net:










   Realized gain on sale of investment securities, net

133


346


153


494


1,126

   Unrealized gain (loss) on investment securities measured at fair value through 
   net income, net

(192)


(365)


679


197


319

   Gain (loss) on derivative instruments and other securities, net

676


400


(385)


(3,154)


(2,463)

Total other gain (loss), net

617


381


447


(2,463)


(1,018)

Expenses:










   Compensation and benefits

17


AGNC Investment Corp.

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