AGNC AGNC Investment Corporation

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 earnings of $1.48 per share during first quarter 2011, compared to $2.13 in the year-earlier quarter. Excluding one-time items, recurring net income for the reported quarter was $1.30 per share. The recurring earnings for first quarter 2011 missed the Zacks Consensus Estimate by 6 cents.

The company generated total revenues of $144.5 million during first quarter 2011 compared to $56.6 million in the year-ago quarter. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $106 million.

American Capital Agency recorded an annualized return on equity of 22% for the quarter. As of March 31, 2011, the company’s investment portfolio comprised $28.2 billion worth of agency securities at fair value, including $22.9 billion of fixed-rate securities, $4.9 billion of adjustable-rate securities and $0.4 billion of CMOs.

About 18% of the investment portfolio comprised adjustable-rate securities, 44% of 15-year fixed-rate securities, 32% of 30-year fixed-rate securities, 5% of 20-year fixed-rate securities and 1% of CMOs backed by fixed and adjustable-rate securities.

The investment portfolio of American Capital Agency was financed with $22.0 billion of repurchase agreements, $3.3 billion of equity capital and $0.1 billion of variable debt resulting in a leverage ratio of 6.6x. Adjusting for the net payable for agency securities not yet settled, the leverage ratio was 7.6x as of March 31, 2011. During the quarter, American Capital Agency raised $1.75 billion of net proceeds from its equity offering.

American Capital Agency declared a first quarter dividend of $1.40 per share, which equates to a total of $499.2 million in dividends or $14.66 per share since its initial public offering. American Capital Agency is one of only a few companies to have increased its dividend even during the recession.

American Capital Agency’s annualized weighted average yield on average earning assets was 3.39% and its annualized average cost of funds was 0.81%, which resulted in an annualized net interest rate spread of 2.58% during the quarter, unchanged from the fourth quarter of 2010. As of March 31, 2011, the company's book value per share was $25.96 compared to $24.24 at year-end 2010. At quarter-end, American Capital Agency had cash and cash equivalents of $300.6 million.

We maintain our ‘Neutral’ recommendation on American Capital Agency, which currently has a Zacks #3 Rank translating into a short-term ‘Hold’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank  for Anworth Mortgage Asset Corporation (ANH), a competitor of American Capital Agency.

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