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Actionable news in AGNC: American Capital Agency Corp.,

American Capital Agency Corp REPORTS

The following excerpt is from the company's SEC filing.

$(0.43)

COMPREHENSIVE

PER COMMON SHARE AND

$23.00

NET BOOK VALUE PER COMMON SHARE

Bethesda, MD -

October 26, 2015

- American Capital Agency Corp. (“AGNC” or the “Company”) (Nasdaq: AGNC) today reported a comprehensive

for the

third quarter

per common share and net book value of

per common share. Economic loss for the period, defined as dividends per common share and the change in net book value ("NAV") per common share, was

for the quarter, or

on an annualized basis.

THIRD QUARTER

FINANCIAL HIGHLIGHTS

per common share, comprised of:

$(1.84)

other comprehensive income ("OCI") per common share

Includes net unrealized gains on investments marked-to-market through OCI

net spread and dollar roll income per common share, excluding estimated "catch-up" premium amortization

per common share of dollar roll income associated with the Company's

$9.4 billion

average net

position in forward purchases and sales of agency mortgage-backed securities ("MBS") in the "to-be-announced" ("TBA") market

Excludes

$(0.10)

per common share of estimated "catch-up" premium amortization

due to change in projected constant prepayment rate ("CPR") estimates

net book value per common share as of

September 30, 2015

Decreased

$(1.00)

per common share, or

, from

$24.00

June 30, 2015

dividend declared per common share during the quarter

annualized dividend yield based on

closing stock price of

$18.70

economic loss on common equity for the quarter, or

Comprised of

dividend per common share and

decrease

in net book value per common share

2.35 million shares of common stock repurchased during the quarter

Represents 0.7% of common stock outstanding as of

$19.08 per share average repurchase price, inclusive of transaction costs

OTHER

$62.2 billion

agency MBS investment portfolio as of

$7.4 billion

TBA mortgage position as of

x "at risk" leverage as of

x leverage excluding net

portfolio CPR for the quarter

average projected portfolio life CPR as of

annualized net interest rate spread for the quarter, including TBA dollar roll income

bps of "catch up" premium amortization cost due to change in projected CPR estimates

MANAGEMENT REMARKS

Gary Kain, President and Chief Investment Officer, commented, "The financial markets continued to exhibit significant volatility during the third quarter as strains in emerging market economies drove global weakness in both the debt and equity markets. Fixed income market participants continue to struggle with how to balance the cross-currents of slowing growth abroad, moderate growth in the U.S. and a Federal Reserve that appears biased to want to raise interest rates in the near term. Against this backdrop, the spread on most fixed income products widened significantly versus swap rates. Agency MBS spreads were no exception, widening relative to our interest rate swap hedges and driving our decline in net book value for the quarter."

"It is important to note that wider MBS spreads, while adverse to current period financial results, improve the returns on new investments, which can provide a material benefit to our earnings over the long term," continued Mr. Kain. "As AGNC is currently operating with a lower leverage profile than it has historically, AGNC has the ability to take advantage of a more favorable investment environment through increased leverage. Additional agency MBS spread widening, should it occur, would further enhance the expected returns on new asset purchases and likely provide a compelling opportunity for us to continue to increase leverage."

John Erickson, Chief Financial Officer and Executive Vice President, commented, "During the third quarter, we bought back 2.35 million shares of our common stock, totaling $45 million. Our goal is to manage our portfolio in a manner that generates long term value for our shareholders, and the accretion from share repurchases can be an important tool in this endeavor under appropriate circumstances. Looking ahead, we will continue to evaluate common stock repurchase opportunities in the context of market conditions and new investment opportunities."

As of

, the Company's net book value per common share was

lower than its

net book value per common share of

. Declines in the value of the Company's interest rate hedge portfolio more than offset price increases on the Company's assets during the third quarter due to wider spreads between agency MBS and benchmark interest rates. In particular, the underperformance of interest rate swaps relative to agency MBS drove much

quarterly decline in net book value, given that interest rate swaps represent the Company's primary hedging instrument.

INVESTMENT PORTFOLIO

As a real estate investment trust (“REIT”), AGNC invests primarily in agency pass-through securities for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government-sponsored enterprise. In keeping with AGNC's investment objective of maintaining minimal credit exposure, the Company also announced that its Board of Directors has approved limited investments of up to 10% of the Company’s total assets in AAA non-agency mortgage-backed securities. The Company believes the modification to its investment guidelines offers incremental return potential with limited credit exposure, while ensuring that the Company’s investment portfolio remains highly liquid.

, the Company's investment portfolio totaled

and was entirely comprised of agency MBS and TBA securities:

$60.2 billion

of fixed-rate securities, comprised of:

$18.4 billion

≤ 15-year securities,

$(0.3) billion

15-year net

TBA securities,

$1.1 billion

20-year fixed-rate securities,

$33.3 billion

30-year fixed-rate securities and

$7.7 billion

30-year net

TBA securities;

$0.6 billion

of adjustable-rate securities; and

$1.4 billion

of collateralized mortgage obligations (“CMOs”), including principal and interest-only strips.

, inclusive of the net TBA position, ≤ 15-year fixed rate securities represented 29% of the Company's investment portfolio, a decrease from 34% as of

, and 30-year fixed rate securities represented 66% of the Company's investment portfolio, an increase from 61% as of

, the Company's fixed-rate mortgage assets, inclusive of the net TBA position, had a weighted average coupon of

, compared to

, comprised of the following weighted average coupons:

for ≤ 15-year fixed rate securities;

for 20-year fixed-rate securities; and

for 30-year fixed-rate securities.

The Company accounts for its TBA mortgage portfolio (also referred to as "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

, the Company's net TBA position had a total fair value of

, a total cost basis of

$7.3 billion

and a net carrying value of

$120 million

reported in derivative assets/(liabilities) on the Company's balance sheet, compared to a total fair value and total cost basis of

$7.1 billion

$(46) million

, respectively.

CONSTANT PREPAYMENT RATES

The Company's investment portfolio had a weighted average CPR of

for the prior quarter. The weighted average projected CPR for the remaining life of the Company's agency securities held as of

increased to

due to lower interest rates.

The weighted average cost basis of the Company's investment portfolio was

104.5%

of par value as of

. Net premium amortization cost on the Company's investment portfolio for the

$(128) million

$(0.37)

per common share, including a "catch-up" premium amortization cost of

$(33) million

per common share, due to changes in the Company's projected CPR estimates. This compares to net premium amortization cost for the prior quarter of $

(69) million

, or $

(0.20)

per common share, including a "catch-up" premium amortization benefit of

$37 million

per common share. The net unamortized premium balance as of

$2.3 billion

The Company amortizes or accretes premiums and discounts associated with purchases of agency securities into interest income using the effective yield method over the estimated life of such securities, incorporating both actual repayments to date and projected repayments over the remaining life of the security. Faster actual or projected repayments can have a meaningful negative impact on the Company's asset yields, while slower actual or projected repayments can have a meaningful positive impact.

ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE SPREAD

The Company's average asset yield on its "balance sheet funded assets" (i.e., the Company's investment portfolio excluding the net TBA position) was

for the prior quarter. Excluding "catch-up" premium amortization (cost)/benefit, the Company's average asset yield was

, unchanged from the prior quarter.

For the

, the Company's average cost of funds was

for the prior quarter. The Company's average cost of funds includes the cost of agency repurchase agreements ("agency repo"), Federal Home Loan Bank ("FHLB") advances, debt of consolidated variable interest entities ("other debt") and interest rate swaps (including interest rate swaps used to hedge the Company's dollar roll funded assets) measured against the Company's daily weighted average agency repo, FHLB advances and other debt balance outstanding.

Excluding swap costs related to the Company's TBA dollar roll funded assets, the Company's cost of funds for its balance sheet funded assets was

for the prior quarter largely due to higher swap costs.

The Company's combined annualized net interest rate spread on its balance sheet and dollar roll funded assets for the quarter was

for the prior quarter. Excluding "catch-up" premium amortization (cost)/benefit, the Company's combined annualized net interest rate spread on its balance sheet and dollar roll funded assets for the quarter was

On a per share basis, the Company recognized

per common share of net spread and dollar roll income (a non-GAAP financial measure) for the

quarter. Excluding "catch-up" premium amortization (cost)/benefit, the Company's net spread and dollar roll income was

per common share for the

per common share for the prior quarter. Net spread and dollar roll income for the

included

per common share of dollar roll income, an increase from

per common share for the prior quarter due to a larger average dollar roll position, partially offset by weaker dollar roll funding levels. 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

$40.6 billion

of agency repo,

$3.5 billion

of FHLB advances and $0.6 billion of other debt were used to fund acquisitions of agency securities. The remainder, or...


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