BETHESDA, Md., Oct. 30, 2017 /PRNewswire/ -- MTGE Investment
Corp. ("MTGE" or the "Company") (Nasdaq: MTGE) today announced
financial results for the quarter ended September 30,
2017.
THIRD QUARTER 2017 FINANCIAL HIGHLIGHTS
- $1.06 net income per common
share
-
- Includes all unrealized gains and losses on investment
securities and hedging instruments
- $0.50 net spread and dollar roll
income per common share, excluding estimated "catch-up" premium
amortization, compared to $0.54 per
common share for the previous quarter (1)
-
- Includes $0.19 per common share
of estimated dollar roll income associated with the Company's
$1.9 billion average net long
position in forward purchases and sales of agency mortgage-backed
securities ("MBS") in the "to-be-announced" ("TBA") market
- Excludes $(0.01) per common share
of estimated "catch-up" premium amortization expense due to change
in projected constant prepayment rate ("CPR") estimates
- $0.04 per common share of net
healthcare investment income
-
- $0.08 per common share, excluding
$(0.04) of depreciation expense on
real property
- $0.45 dividend per common
share
- $20.61 net book value per common
share as of September 30, 2017
-
- Increased $0.61 per common share,
or 3.1%, from $20.00 as of
June 30, 2017
- Includes $(0.12) per common share
of cumulative depreciation of real property
- 5.3% economic return on common equity for the quarter
- Comprised of $0.45 dividend and
$0.61 increase in net book value per
common share
ADDITIONAL THIRD QUARTER 2017 HIGHLIGHTS
- $6.8 billion investment portfolio
as of September 30, 2017
-
- $3.7 billion agency
securities
- $1.9 billion net long TBA
- $0.9 billion non-agency
securities
- $0.3 billion healthcare real
estate investments
- 6.3x "at risk" leverage on agency and non-agency securities as
of September 30, 2017, consistent
with June 30, 2017
-
- 4.2x excluding net long TBA mortgage position as of
September 30, 2017
- 8.5% projected life CPR for agency securities as of
September 30, 2017
-
- Decreased from 8.8% at June 30,
2017
- 10.5% agency securities CPR for the quarter
- 1.76% annualized net interest rate spread and dollar roll
income for the quarter, excluding estimated "catch-up" premium
amortization
-
- Excludes 4 bps of "catch-up" premium amortization expense
- A decrease from 1.96% for the prior quarter, excluding 5 bps of
"catch-up" premium amortization expense
MANAGEMENT REMARKS
"MTGE's investment portfolio
produced an economic return of 5.3% in the third quarter, comprised
of its $0.45 dividend per common share and a 3.1%
increase in net asset value," commented Gary Kain, the Company's Chief Executive
Officer, President and Chief Investment Officer. "The
investment environment for residential mortgage investments
remained very favorable as strong housing fundamentals and low
interest rate volatility continued to support attractive
returns. Despite the Federal Reserve's announcement of its
long-anticipated plan to reduce MBS reinvestments, agency MBS
valuations improved modestly during the quarter. Non-agency
assets continued their strong 2017 performance, albeit at a more
modest pace than prior quarters, as global yield investors drove
further spread tightening. MTGE's healthcare investments also
continued to perform according to expectations, generating strong
cash flows."
"We are very pleased with MTGE's year-to-date economic return of
14.6% and total stock return of 33% through the end of the third
quarter," added Peter Federico, Executive Vice President and
Chief Financial Officer. "These metrics reflect the
beneficial macroeconomic environment and a flexible investment
mandate that allows MTGE to allocate capital across a broad
spectrum of opportunities as market conditions dictate.
Although the fundamental drivers of mortgage credit performance
remain positive, valuations of non-agencies are elevated. As
such, we continue to anticipate increasing our capital allocation
toward agency and healthcare investments until the relative
risk/return landscape changes."
NET BOOK VALUE
As of September 30, 2017, the
Company's net book value per common share was $20.61, an increase of $0.61 per common share, or 3.1% from its
June 30, 2017 net book value per
common share of $20.00. The increase
in the Company's net book value per common share was primarily due
to net fair value gains on agency and non-agency investments during
the quarter.
INVESTMENT PORTFOLIO
As of September 30, 2017,
the Company's investment portfolio included $3.7 billion of agency MBS, $1.9 billion of net long TBA positions,
$0.9 billion of non-agency securities
and $0.3 billion of healthcare real
estate investments.
As of September 30, 2017, the Company's fixed rate agency
investments were comprised of $0.5
billion 15 year MBS, $0.1
billion 20 year MBS, $3.0
billion 30 year MBS, $0.3
billion net long 15 year TBA securities and $1.6 billion net long 30 year TBA
securities. As of September 30, 2017, 15 year fixed rate
investments represented 14% of the Company's agency investment
portfolio, consistent with June 30,
2017, and 30 year fixed rate investments represented 82% of
the Company's agency portfolio, consistent with June 30, 2017.
As of September 30, 2017, the Company's net long TBA
mortgage portfolio had a fair value and cost basis of approximately
$1.9 billion, with a net carrying
value of $(4.4) million reported in
derivative assets/(liabilities) on the Company's consolidated
balance sheet. The Company accounts for TBA securities as
derivative instruments and recognizes dollar roll income and other
realized and unrealized gains and losses on TBA securities in other
gains (losses), net on the Company's consolidated statements of
operations.
As of September 30, 2017, the Company's agency fixed rate
assets, inclusive of the net long TBA position, had a weighted
average coupon of 3.55%, down from 3.57% at June 30, 2017, comprised of the following
weighted average coupons:
- 3.10% for 15 year securities;
- 3.29% for 20 year securities; and
- 3.64% for 30 year securities.
As of September 30, 2017, the Company's $0.9 billion non-agency portfolio was comprised
of approximately 36% Alt-A, 33% credit risk transfer, 16% prime,
11% option ARM, 2% subprime and 2% commercial mortgage backed
securities ("CMBS").
CONSTANT PREPAYMENT RATES
The CPR for the Company's
agency portfolio during the third quarter of 2017 was 10.5%, up
from 9.2% in the second quarter. The weighted average
projected CPR for the remaining life of the Company's agency
securities held as of September 30, 2017 was 8.5%, down from
8.8% as of June 30, 2017 largely due
to the mix of assets acquired during the third quarter.
The Company amortizes and accretes premiums and discounts
associated with purchases of agency securities into interest income
over the estimated life of such securities based on actual and
projected CPRs using the effective yield method. As such,
slower actual and projected prepayments can have a meaningful
positive impact, while faster actual or projected prepayments can
have a meaningful negative impact on the Company's agency asset
yields.
The weighted average cost basis of the Company's agency
securities was 105.3% of par and the unamortized agency net premium
was $187.7 million as of
September 30, 2017. The amortization of premiums (net of
any accretion of discounts) on the agency portfolio for the quarter
was $7.0 million, which includes
"catch-up" premium amortization expense of $0.7 million due to changes in the Company's
projected CPR estimates for securities acquired prior to the third
quarter. This compares to net premium amortization cost for the
prior quarter of $6.6 million
including a "catch-up" premium amortization expense of $0.7 million.
NON-AGENCY ACCRETION INCOME
The weighted average cost
basis of the Company's non-agency portfolio was 85.1% of par as of
September 30, 2017. Accretion income on the non-agency
portfolio for the quarter was $4.2
million. The total net discount remaining was
$141.1 million as of
September 30, 2017, with $88.7
million designated as credit reserves.
ASSET YIELDS, COST OF FUNDS AND NET INTEREST RATE
SPREAD
The Company's average annualized net interest rate
spread on its balance sheet and TBA securities for the third
quarter was 1.72% compared to 1.91% in the second quarter.
Excluding estimated "catch-up" premium amortization due to changes
in projected CPR, the Company's average annualized net interest
rate spread was 1.76% for the third quarter, compared to 1.96% in
the second quarter.
The Company's average agency and non-agency securities asset
yield excluding TBAs was 3.35% for the third quarter, compared to
3.40% for the second quarter and 3.47% as of September 30,
2017, down 1 bp from 3.45% as of June 30,
2017.
The Company's average cost of funds was 1.72% for the third
quarter, compared to 1.65% for the second quarter. The
Company's average cost of funds includes the cost of effective
interest rate swaps, including those used to hedge the Company's
TBA assets. The Company's average cost of funds as of
September 30, 2017 was 1.63%, compared to 1.54% as of
June 30, 2017.
The Company recognized $0.50 per
common share of net spread and dollar roll income excluding
"catch-up" premium amortization (a non-GAAP financial measure) for
the third quarter, compared to $0.54
for the prior quarter. Net spread and dollar roll income for
the third quarter included $0.19 per
common share of dollar roll income, compared to $0.21 for the prior quarter. 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
The Company uses repurchase agreements to
fund purchases of agency and non-agency securities. Including TBA
securities, the Company's "at risk" leverage ratio for agency and
non-agency securities was 6.3x as of September 30, 2017 and
averaged 6.2x during the third quarter.
The $3.8 billion borrowed under
repurchase agreements as of September 30, 2017 included
$1.7 billion with remaining
maturities of one month or less and all but $0.3 billion with remaining maturities of less
than twelve months.
As of September 30, 2017, the Company's agency and
non-agency repurchase agreements had an average of 113 days
remaining to maturity, up from 94 days as of June 30, 2017.
HEDGING ACTIVITIES
As of September 30, 2017, 81%
of the Company's funding and net TBA balance was hedged through a
combination of interest rate swaps, interest rate swaptions and
short positions in U.S. Treasury securities, consistent with
June 30, 2017.
The Company's interest rate swap positions as of
September 30, 2017 totaled $3.6
billion in notional amount, and had a weighted average fixed
pay rate of 1.54%, a weighted average receive rate of 1.31% and a
weighted average maturity of 4.0 years. The Company enters
into interest rate swaps with longer maturities with the intention
of protecting its net book value and longer term earnings
potential.
The Company utilizes interest rate swaptions to mitigate the
Company's exposure to larger, more rapid increases in interest
rates. As of September 30, 2017, the Company held payer
swaption contracts with a total notional amount of $350.0 million and a weighted average expiration
of 2.3 years. These swaptions have an underlying weighted
average interest rate swap term of 8.0 years and a weighted average
pay rate of 2.94% as of September 30, 2017.
The Company held a $(0.8) billion
net short position in U.S. Treasury securities as of
September 30, 2017.
HEALTHCARE REAL ESTATE INVESTMENTS
The Company's
wholly owned subsidiary, Capital Healthcare Investments, LLC
("CHI"), held real estate assets of $282
million, financed with $187
million of secured notes payable with a weighted average
interest rate of 4.49% as of September 30, 2017. During
the third quarter, CHI recorded lease and rental revenues of
$7.7 million and expenses of
$5.7 million, including $2.0 million of depreciation expense on real
estate assets.
The Company's real estate assets are accounted for at historical
cost, net of accumulated depreciation, as applicable.
SERVICING
During the third quarter, the Company's
servicing subsidiary Residential Credit Solutions ("RCS") recorded
a net servicing loss of $1.2 million,
down from $1.8 million during the
second quarter, related to the wind-down of servicing
operations.
OTHER GAINS (LOSSES), NET
The Company has elected to
record all agency and non-agency securities at fair value with all
changes in fair value recorded in current GAAP earnings as other
gains (losses). In addition, the Company has not designated
any derivatives as hedges for GAAP accounting purposes and
therefore all changes in the fair value of derivatives are recorded
in current GAAP earnings as other gains (losses).
During the third quarter, the Company recorded $32.9 million in other gains (losses), net, or
$0.72 per common share. Other
gains (losses), net, for the quarter are comprised of:
- $1.2 million of net realized gain
on agency and non-agency securities;
- $8.8 million of net unrealized
gain on agency securities;
- $9.0 million of net unrealized
gain on non-agency securities;
- $(1.4) million of net realized
loss on periodic settlements of interest rate swaps;
- $18.2 million of net realized
gain on other derivatives and securities; and
- $(2.9) million of net unrealized
loss on other derivatives and securities.
THIRD QUARTER 2017 DIVIDEND DECLARATION
On
September 13, 2017, the Board of
Directors of the Company declared a third quarter dividend on its
common stock of $0.45 per share,
which was paid on October 27, 2017 to
common stockholders of record as of September 29, 2017. Since its August 2011 initial public offering, the Company
has declared and paid a total of $643.3
million in common stock dividends, or $15.00 per common share.
On September 13, 2017, the Board
of Directors of the Company declared a third quarter dividend on
its 8.125% Series A Cumulative Redeemable Preferred Stock ("Series
A Preferred Stock") of $0.5078125 per
share. The dividend was paid on October 16,
2017 to preferred stockholders of record as of October 1, 2017. Since the May 2014 Series A Preferred Stock offering, the
Company has declared and paid a total of $15.0 million in Series A Preferred Stock
dividends, or $6.9006125 per
share.
STOCK REPURCHASE PROGRAM
The Board of Directors of the
Company has authorized an extension of the Company's existing stock
repurchase plan through December 31,
2018. Under the stock repurchase plan, the Company is
authorized to repurchase up to $100
million of its outstanding shares of common stock. The
Company has not made any repurchases under the current plan.
FINANCIAL STATEMENTS, OPERATING PERFORMANCE AND PORTFOLIO
STATISTICS
The following tables include certain measures of
operating performance, such as net spread income and estimated
taxable income, 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.
MTGE INVESTMENT
CORP.
|
CONSOLIDATED
BALANCE SHEETS
|
(in thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2017
|
|
June
30, 2017
|
|
March
31, 2017
|
|
December
31, 2016
|
|
September
30, 2016
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
(unaudited)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Agency
securities, at fair value
|
|
$
3,686,634
|
|
$
3,657,947
|
|
$
2,997,725
|
|
$
2,803,168
|
|
$
2,952,851
|
Non-agency
securities, at fair value
|
|
896,147
|
|
884,986
|
|
948,495
|
|
1,134,469
|
|
1,285,266
|
U.S. Treasury
securities, at fair value
|
|
-
|
|
-
|
|
-
|
|
20,209
|
|
4,995
|
Land
|
|
16,641
|
|
16,641
|
|
7,374
|
|
5,646
|
|
4,383
|
Buildings,
furniture, fixtures and equipment, net of
accumulated depreciation
|
|
242,239
|
|
244,159
|
|
105,915
|
|
81,780
|
|
59,492
|
Cash and cash
equivalents
|
|
129,927
|
|
155,541
|
|
130,084
|
|
123,640
|
|
122,872
|
Restricted
cash
|
|
45,422
|
|
40,424
|
|
34,442
|
|
13,005
|
|
44,608
|
Interest
receivable
|
|
13,632
|
|
12,667
|
|
10,593
|
|
9,767
|
|
10,006
|
Derivative
assets, at fair value
|
|
12,858
|
|
15,518
|
|
15,995
|
|
29,048
|
|
6,583
|
Receivable for
securities sold
|
|
-
|
|
105,656
|
|
5,748
|
|
-
|
|
158,024
|
Receivable
under reverse repurchase agreements
|
|
761,779
|
|
857,368
|
|
1,335,057
|
|
487,469
|
|
166,542
|
Mortgage
servicing rights, at fair value
|
|
-
|
|
-
|
|
-
|
|
49,776
|
|
50,535
|
Other
assets
|
|
19,385
|
|
19,994
|
|
27,754
|
|
39,178
|
|
42,656
|
Total
assets
|
|
$
5,824,664
|
|
$
6,010,901
|
|
$
5,619,182
|
|
$
4,797,155
|
|
$
4,908,813
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Repurchase
agreements
|
|
$
3,807,880
|
|
$
3,805,778
|
|
$
3,185,134
|
|
$
2,970,816
|
|
$
3,284,942
|
Federal Home
Loan Bank advances
|
|
-
|
|
-
|
|
-
|
|
273,700
|
|
273,700
|
Notes
payable
|
|
186,504
|
|
186,924
|
|
86,208
|
|
66,527
|
|
49,221
|
Payable for
securities purchased
|
|
22,049
|
|
149,141
|
|
21,837
|
|
-
|
|
76,006
|
Derivative
liabilities, at fair value
|
|
9,401
|
|
10,554
|
|
6,678
|
|
27,820
|
|
23,414
|
Dividend
payable
|
|
21,726
|
|
21,726
|
|
21,726
|
|
19,436
|
|
19,436
|
Obligation to
return securities borrowed under
reverse repurchase agreements, at fair value
|
|
751,234
|
|
839,419
|
|
1,321,843
|
|
474,935
|
|
166,327
|
Accounts
payable and other accrued liabilities
|
|
26,356
|
|
26,030
|
|
25,613
|
|
30,876
|
|
19,129
|
Total
liabilities
|
|
4,825,150
|
|
5,039,572
|
|
4,669,039
|
|
3,864,110
|
|
3,912,175
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
Redeemable
preferred stock - aggregate
liquidation preference of $55,000
|
|
53,039
|
|
53,039
|
|
53,039
|
|
53,039
|
|
53,039
|
Common stock,
$0.01 par value; 300,000 shares
authorized, 45,798 issued and outstanding,
respectively
|
|
458
|
|
458
|
|
458
|
|
458
|
|
458
|
Additional
paid-in capital
|
|
1,122,661
|
|
1,122,593
|
|
1,122,527
|
|
1,122,493
|
|
1,122,459
|
Retained
deficit
|
|
(177,170)
|
|
(205,294)
|
|
(226,187)
|
|
(243,260)
|
|
(179,640)
|
Total
MTGE Investment Corp.
stockholders' equity
|
|
998,988
|
|
970,796
|
|
949,837
|
|
932,730
|
|
996,316
|
Noncontrolling
interests
|
|
526
|
|
533
|
|
306
|
|
315
|
|
322
|
Total
stockholders' equity
|
|
999,514
|
|
971,329
|
|
950,143
|
|
933,045
|
|
996,638
|
Total
liabilities and stockholders' equity
|
|
$
5,824,664
|
|
$
6,010,901
|
|
$
5,619,182
|
|
$
4,797,155
|
|
$
4,908,813
|
|
|
|
|
|
|
|
|
|
|
|
Net book value per
common share
|
|
$
20.61
|
|
$
20.00
|
|
$
19.54
|
|
$
19.17
|
|
$
20.55
|
MTGE INVESTMENT
CORP.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(in thousands,
except per share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
September
30, 2017
|
|
June
30, 2017
|
|
March
31, 2017
|
|
December
31, 2016
|
|
September
30, 2016
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
Agency
securities
|
|
$
23,147
|
|
$
22,010
|
|
$
17,901
|
|
$
23,094
|
|
$
19,028
|
Non-agency
securities
|
|
12,521
|
|
13,478
|
|
15,696
|
|
16,261
|
|
16,410
|
Other
|
|
323
|
|
245
|
|
160
|
|
98
|
|
153
|
Interest
expense
|
|
(14,447)
|
|
(12,344)
|
|
(10,165)
|
|
(10,144)
|
|
(10,082)
|
Net
interest income
|
|
21,544
|
|
23,389
|
|
23,592
|
|
29,309
|
|
25,509
|
Servicing:
|
|
|
|
|
|
|
|
|
|
|
Servicing
income
|
|
4
|
|
75
|
|
2,558
|
|
3,589
|
|
3,904
|
Servicing
expense
|
|
(1,165)
|
|
(1,915)
|
|
(4,985)
|
|
(4,750)
|
|
(6,394)
|
Net
servicing loss
|
|
(1,161)
|
|
(1,840)
|
|
(2,427)
|
|
(1,161)
|
|
(2,490)
|
Healthcare:
|
|
|
|
|
|
|
|
|
|
Healthcare real
estate income
|
|
7,671
|
|
5,754
|
3,315
|
2,721
|
|
2,424
|
Healthcare real
estate expense
|
|
(5,702)
|
(4,373)
|
(2,653)
|
(2,223)
|
(2,074)
|
Net
healthcare investment income
|
|
1,969
|
1,381
|
662
|
498
|
350
|
Other gains
(losses), net:
|
|
|
|
|
|
|
Realized gain
(loss) on agency securities, net
|
|
775
|
(489)
|
(212)
|
(5,226)
|
5,913
|
Realized gain
on non-agency securities, net
|
|
395
|
14,481
|
12,714
|
3,182
|
756
|
Realized loss
on periodic settlements of interest rate
swaps, net
|
|
(1,361)
|
(2,281)
|
(2,660)
|
(1,935)
|
(2,041)
|
Realized gain
(loss) on other derivatives and securities,
net
|
|
18,222
|
4,745
|
2,167
|
(9,930)
|
(40,483)
|
Unrealized gain
(loss) on agency securities, net
|
|
8,780
|
9,146
|
(115)
|
(84,460)
|
(5,228)
|
Unrealized gain
on non-agency securities, net
|
|
9,007
|
11,219
|
13,014
|
2,555
|
33,462
|
Unrealized gain
(loss) on other derivatives and securities,
net
|
|
(2,895)
|
(11,718)
|
(2,839)
|
30,396
|
58,563
|
Gain on
mortgage servicing rights
|
|
-
|
-
|
-
|
2,007
|
62
|
Impairment of
intangible assets
|
|
-
|
-
|
-
|
(5,000)
|
-
|
Total
other gains (losses), net
|
|
32,923
|
25,103
|
22,069
|
(68,411)
|
51,004
|
Expenses:
|
|
|
|
|
|
|
Management
fees
|
|
3,543
|
3,488
|
3,376
|
3,510
|
3,525
|
General and
administrative expenses
|
|
1,882
|
1,933
|
1,719
|
1,651
|
1,794
|
Total
expenses
|
|
5,425
|
5,421
|
5,095
|
5,161
|
5,319
|
Income (loss)
before tax
|
|
49,850
|
42,612
|
38,801
|
(44,926)
|
69,054
|
Benefit from
(provision for) excise and income tax, net
|
|
-
|
|
-
|
|
-
|
|
745
|
(31)
|
Net income
(loss)
|
|
49,850
|
|
42,612
|
|
38,801
|
|
(44,181)
|
|
69,023
|
Dividend on
preferred stock
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
Net (income)
loss attributable to noncontrolling interests
|
|
-
|
|
7
|
|
(2)
|
|
(3)
|
|
(5)
|
Net income (loss)
available to common stockholders
|
|
$
48,733
|
|
$
41,502
|
|
$
37,682
|
|
$
(45,301)
|
|
$
67,901
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per common share - basic and diluted
|
|
$
1.06
|
|
$
0.91
|
|
$
0.82
|
|
$
(0.99)
|
|
$
1.48
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common shares outstanding
- basic
|
|
45,809
|
|
45,803
|
|
45,798
|
|
45,798
|
|
45,798
|
Weighted average
number of common shares outstanding
- diluted
|
|
45,814
|
|
45,804
|
|
45,806
|
|
45,803
|
|
45,801
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
per common share
|
|
$
0.45
|
|
$
0.45
|
|
$
0.45
|
|
$
0.40
|
|
$
0.40
|
MTGE INVESTMENT
CORP.
|
RECONCILIATIONS OF
GAAP NET INTEREST INCOME TO NET SPREAD AND DOLLAR ROLL INCOME
(1)
|
(in thousands,
except per share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
September
30, 2017
|
|
June
30, 2017
|
|
March
31, 2017
|
|
December
31, 2016
|
|
September
30, 2016
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
Agency
securities
|
|
$
23,147
|
|
$
22,010
|
|
$
17,901
|
|
$
23,094
|
|
$
19,028
|
Non-agency
securities and other
|
|
12,844
|
|
13,723
|
|
15,856
|
|
16,359
|
|
16,563
|
Interest
expense
|
|
(14,447)
|
|
(12,344)
|
|
(10,165)
|
|
(10,144)
|
|
(10,082)
|
Net
interest income
|
|
21,544
|
|
23,389
|
|
23,592
|
|
29,309
|
|
25,509
|
Realized loss
on periodic settlements of interest
rate swaps, net
|
|
(1,361)
|
|
(2,281)
|
|
(2,660)
|
|
(1,935)
|
|
(2,041)
|
Dollar roll
income
|
|
8,818
|
|
9,567
|
|
7,271
|
|
6,185
|
|
4,231
|
Adjusted net interest and dollar roll income
|
|
29,001
|
|
30,675
|
|
28,203
|
|
33,559
|
|
27,699
|
Operating
expenses(2)
|
|
(5,425)
|
|
(5,421)
|
|
(5,095)
|
|
(5,161)
|
|
(5,319)
|
Net
spread and dollar roll income
|
|
23,576
|
|
25,254
|
|
23,108
|
|
28,398
|
|
22,380
|
Dividend on
preferred stock
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
Net
spread and dollar roll income available to
common stockholders
|
|
22,459
|
|
24,137
|
|
21,991
|
|
27,281
|
|
21,263
|
Estimated
"catch-up" premium amortization cost
(benefit) due to change in CPR forecast
|
|
669
|
|
736
|
|
645
|
|
(4,349)
|
|
674
|
Net
spread and dollar roll income, excluding
"catch-up" premium amortization, available
to common stockholders
|
|
$
23,128
|
|
$
24,873
|
|
$
22,636
|
|
$
22,932
|
|
$
21,937
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common shares
outstanding - basic
|
|
45,809
|
|
45,803
|
|
45,798
|
|
45,798
|
|
45,798
|
Weighted average
number of common shares
outstanding - diluted
|
|
45,814
|
|
45,804
|
|
45,806
|
|
45,803
|
|
45,801
|
|
|
|
|
|
|
|
|
|
|
|
Net
spread and dollar roll income per
common share- basic and diluted
|
|
$
0.49
|
|
$
0.53
|
|
$
0.48
|
|
$
0.60
|
|
$
0.46
|
Net
spread and dollar roll income, excluding
"catch up" amortization per common share-
basic and diluted
|
|
$
0.50
|
|
$
0.54
|
|
$
0.49
|
|
$
0.50
|
|
$
0.48
|
MTGE INVESTMENT
CORP.
|
RECONCILIATIONS OF
GAAP NET INCOME TO ESTIMATED TAXABLE INCOME
(1)
|
(in thousands,
except per share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
September
30, 2017
|
|
June
30, 2017
|
|
March
31, 2017
|
|
December
31, 2016
|
|
September
30, 2016
|
Net income
(loss)
|
|
$
49,850
|
|
$
42,612
|
|
$
38,801
|
|
$
(44,181)
|
|
$
69,023
|
Estimated book to
tax differences:
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(gains) and losses, net
|
|
|
|
|
|
|
|
|
|
|
Agency
securities
|
|
(8,780)
|
|
(9,146)
|
|
115
|
|
84,460
|
|
5,228
|
Non-agency securities
|
|
(9,007)
|
|
(11,219)
|
|
(13,014)
|
|
(2,555)
|
|
(33,462)
|
Derivatives and other securities
|
|
2,895
|
|
11,718
|
|
2,839
|
|
(32,403)
|
|
(58,625)
|
Amortization /
accretion
|
|
1,055
|
|
62
|
|
(1,174)
|
|
(5,011)
|
|
(173)
|
Capital losses
(gains), net (3)
|
|
(18,144)
|
|
(40,978)
|
|
13,716
|
|
(46)
|
|
(8,415)
|
Other realized
losses (gains), net
|
|
(9,278)
|
|
12,536
|
|
(37,324)
|
|
5,292
|
|
37,097
|
Taxable REIT
subsidiary loss and other
|
|
1,161
|
|
1,840
|
|
2,427
|
|
5,201
|
|
2,516
|
Total book to tax
difference
|
|
(40,098)
|
|
(35,187)
|
|
(32,415)
|
|
54,938
|
|
(55,834)
|
Estimated taxable
income
|
|
9,752
|
|
7,425
|
|
6,386
|
|
10,757
|
|
13,189
|
Dividend on
preferred stock
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
|
(1,117)
|
Estimated taxable
income available to common
stockholders
|
|
$
8,635
|
|
$
6,308
|
|
$
5,269
|
|
$
9,640
|
|
$
12,072
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common shares
outstanding - basic
|
|
45,809
|
|
45,803
|
|
45,798
|
|
45,798
|
|
45,798
|
Weighted average
number of common shares
outstanding - diluted
|
|
45,814
|
|
45,804
|
|
45,806
|
|
45,803
|
|
45,801
|
|
|
|
|
|
|
|
|
|
|
|
Net estimated
taxable income per common share -
basic and diluted
|
|
$
0.19
|
|
$
0.14
|
|
$
0.12
|
|
$
0.21
|
|
$
0.26
|
Ending cumulative distributions in excess
of
taxable income per common share
|
|
$
(1.39)
|
|
$
(1.13)
|
|
$
(0.82)
|
|
$
(0.48)
|
|
$
(0.29)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning cumulative
non-deductible capital losses
|
|
$
91,085
|
|
$
132,063
|
|
$
118,347
|
|
$
118,393
|
|
$
126,808
|
Current period net
capital loss (gain)
|
|
(18,144)
|
|
(40,978)
|
|
13,716
|
|
(46)
|
|
(8,415)
|
Ending cumulative
non-deductible capital losses
|
|
$
72,941
|
|
$
91,085
|
|
$
132,063
|
|
$
118,347
|
|
$
118,393
|
Ending cumulative
non-deductible capital losses per
common share
|
|
$
1.59
|
|
$
1.99
|
|
$
2.88
|
|
$
2.58
|
|
$
2.59
|
MTGE INVESTMENT
CORP.
|
KEY PORTFOLIO
STATISTICS (1)(4)
|
(in thousands,
except per share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
September
30, 2017
|
|
June
30, 2017
|
|
March
31, 2017
|
|
December
31, 2016
|
|
September
30, 2016
|
Ending agency
securities, at fair value
|
|
$
3,686,634
|
|
$
3,657,947
|
|
$
2,997,725
|
|
$
2,803,168
|
|
$
2,952,851
|
Ending agency
securities, at cost
|
|
$
3,702,219
|
|
$
3,682,313
|
|
$
3,031,237
|
|
$
2,836,564
|
|
$
2,901,788
|
Ending agency
securities, at par
|
|
$
3,514,499
|
|
$
3,508,139
|
|
$
2,881,851
|
|
$
2,703,884
|
|
$
2,754,915
|
Average agency
securities, at cost
|
|
$
3,465,320
|
|
$
3,310,019
|
|
$
2,762,718
|
|
$
2,855,389
|
|
$
3,043,411
|
Average agency
securities, at par
|
|
$
3,295,584
|
|
$
3,151,220
|
|
$
2,629,607
|
|
$
2,712,249
|
|
$
2,891,174
|
|
|
|
|
|
|
|
|
|
|
|
Ending non-agency
securities, at fair
value
|
|
$
896,147
|
|
$
884,986
|
|
$
948,495
|
|
$
1,134,469
|
|
$
1,285,266
|
Ending non-agency
securities, at cost
|
|
$
807,801
|
|
$
805,648
|
|
$
880,376
|
|
$
1,079,363
|
|
$
1,232,716
|
Ending non-agency
securities, at par
|
|
$
948,940
|
|
$
951,656
|
|
$
1,039,185
|
|
$
1,265,040
|
|
$
1,431,032
|
Average non-agency
securities, at cost
|
|
$
799,643
|
|
$
849,488
|
|
$
1,009,041
|
|
$
1,179,225
|
|
$
1,249,631
|
Average non-agency
securities, at par
|
|
$
943,687
|
|
$
989,287
|
|
$
1,187,097
|
|
$
1,372,229
|
|
$
1,448,546
|
|
|
|
|
|
|
|
|
|
|
|
Net TBA portfolio -
as of period end,
at fair value
|
|
$
1,913,796
|
|
$
1,646,019
|
|
$
2,081,093
|
|
$
900,316
|
|
$
1,209,459
|
Net TBA portfolio -
as of period end,
at cost
|
|
$
1,918,227
|
|
$
1,647,075
|
|
$
2,070,072
|
|
$
918,805
|
|
$
1,205,003
|
Average net TBA
portfolio, at cost
|
|
$
1,899,205
|
|
$
1,743,154
|
|
$
1,366,814
|
|
$
1,104,722
|
|
$
704,098
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets,
at fair value
|
|
$
5,531,198
|
|
$
5,549,988
|
|
$
5,044,712
|
|
$
4,817,780
|
|
$
4,924,603
|
Average agency and
non-agency
repurchase agreements and advances
|
|
$
3,650,206
|
|
$
3,538,006
|
|
$
3,117,397
|
|
$
3,403,590
|
|
$
3,682,233
|
Average stockholders'
equity (5)
|
|
$
990,338
|
|
$
969,718
|
|
$
946,266
|
|
$
965,970
|
|
$
980,655
|
|
|
|
|
|
|
|
|
|
|
|
Average
coupon
|
|
3.62%
|
|
3.58%
|
|
3.38%
|
|
3.35%
|
|
3.34%
|
Average asset
yield
|
|
3.35%
|
|
3.40%
|
|
3.56%
|
|
3.90%
|
|
3.30%
|
Average cost of funds
(6)
|
|
1.72%
|
|
1.65%
|
|
1.67%
|
|
1.41%
|
|
1.30%
|
Average net interest
rate spread
|
|
1.63%
|
|
1.75%
|
|
1.89%
|
|
2.49%
|
|
2.00%
|
Average net interest
rate spread,
including TBA dollar roll (7)
|
|
1.72%
|
|
1.91%
|
|
2.00%
|
|
2.47%
|
|
2.06%
|
Average net interest
rate spread,
including TBA dollar roll, excluding
estimated "catch-up" premium
amortization
|
|
1.76%
|
|
1.96%
|
|
2.05%
|
|
2.13%
|
|
2.12%
|
Average coupon as of
period end
|
|
3.63%
|
|
3.57%
|
|
3.54%
|
|
3.35%
|
|
3.31%
|
Average asset yield
as of period end
|
|
3.47%
|
|
3.45%
|
|
3.60%
|
|
3.70%
|
|
3.47%
|
Average cost of funds
as of period end
|
|
1.63%
|
|
1.54%
|
|
1.55%
|
|
1.62%
|
|
1.30%
|
Average net interest
rate spread as of
period end
|
|
1.84%
|
|
1.91%
|
|
2.05%
|
|
2.08%
|
|
2.17%
|
|
|
|
|
|
|
|
|
|
|
|
Average actual CPR
for agency
securities held during the period
|
|
10.5%
|
|
9.2%
|
|
9.2%
|
|
12.8%
|
|
13.0%
|
Average projected
life CPR for
agency securities as of period end
|
|
8.5%
|
|
8.8%
|
|
8.5%
|
|
8.1%
|
|
10.1%
|
|
|
|
|
|
|
|
|
|
|
|
Leverage - average
during the
period (8)
|
|
4.1x
|
|
4.0x
|
|
3.5x
|
|
3.8x
|
|
4.0x
|
Leverage - average
during the period,
including net TBA position
|
|
6.2x
|
|
6.0x
|
|
5.1x
|
|
5.0x
|
|
4.8x
|
Leverage - as of
period end (9)
|
|
4.2x
|
|
4.4x
|
|
3.6x
|
|
3.7x
|
|
3.7x
|
Leverage - as of
period end, including
net TBA position
|
|
6.3x
|
|
6.3x
|
|
5.9x
|
|
4.8x
|
|
5.0x
|
|
|
|
|
|
|
|
|
|
|
|
Expenses % of average
total assets -
annualized
|
|
0.4%
|
|
0.4%
|
|
0.4%
|
|
0.4%
|
|
0.4%
|
Expenses % of average
stockholders'
equity - annualized
|
|
2.2%
|
|
2.2%
|
|
2.2%
|
|
2.2%
|
|
2.2%
|
Net book value per
common share as
of period end
|
|
$
20.61
|
|
$
20.00
|
|
$
19.54
|
|
$
19.17
|
|
$
20.55
|
Dividends declared
per common share
|
|
$
0.45
|
|
$
0.45
|
|
$
0.45
|
|
$
0.40
|
|
$
0.40
|
Economic return
(loss) on common
equity - annualized
|
|
21.2%
|
|
18.4%
|
|
17.2%
|
|
-19.2%
|
|
30.4%
|
|
|
|
|
(1)
|
Represents a non-GAAP
measure. Refer to "Use of Non-GAAP Financial Information" for
additional discussion of non-GAAP financial measures.
|
(2)
|
Excludes expenses
related to the Company's investments in RCS and healthcare real
estate.
|
(3)
|
The Company's
estimated taxable income excludes any net capital gains, which will
be subtracted from the Company's net capital loss carryforwards
from prior periods.
|
(4)
|
Average numbers for
each period are weighted based on days on the Company's books and
records. All percentages are annualized.
|
(5)
|
Excluding the
Company's investment in healthcare real estate, the average
stockholder's equity for the third quarter was $897
million.
|
(6)
|
Average cost of funds
includes periodic settlements of interest rate swaps and excludes
U.S. Treasury repurchase agreements.
|
(7)
|
Estimated dollar roll
income excludes the impact of other supplemental hedges and is
recognized in gain (loss) on other derivatives and securities,
net.
|
(8)
|
Leverage during the
period was calculated by dividing the Company's daily weighted
average agency and non-agency financing for the period by the
Company's average month-ended stockholders' equity for the period
less investments in RCS and healthcare real estate. Leverage
excludes U.S. Treasury repurchase agreements.
|
(9)
|
Leverage at period
end was calculated by dividing the sum of the amount outstanding
under the Company's agency and non-agency financing and the net
receivable/payable for unsettled securities at period end by the
Company's stockholders' equity at period end less investments in
RCS and healthcare real estate. Leverage excludes U.S.
Treasury repurchase agreements.
|
STOCKHOLDER CALL
MTGE will hold a stockholder call and
live audio webcast on October 31,
2017 at 8:30 am ET. Callers
who do not plan on asking a question and have internet access are
encouraged to utilize the free live webcast at www.MTGE.com. Those
who plan on participating in the Q&A or do not have internet
available may access the call by dialing (877) 503-6874 (U.S.
domestic) or (412) 902-6600 (international). Please advise the
operator you are dialing in for the MTGE Investment Corp.
stockholder call.
A slide presentation will accompany the call and will be
available at www.MTGE.com. Select the Q3 2017 Earnings Presentation
link to download and print the presentation in advance of the
stockholder call.
An archived audio of the stockholder call combined with the
slide presentation will be available on the MTGE website after the
call on October 31, 2017. In
addition, there will be a phone recording available one hour after
the live call on October 31, 2017
through November 14, 2017. Those who
are interested in hearing the recording of the presentation can
access it by dialing (877) 344-7529 (U.S. domestic) or (412)
317-0088 (international), passcode 10112687.
For further information or questions, please contact Investor
Relations at (301) 968-9220 or IR@MTGE.com.
ABOUT MTGE INVESTMENT CORP.
MTGE Investment Corp. is a
real estate investment trust that invests in and manages a
leveraged portfolio of agency mortgage investments, non-agency
mortgage investments and other real estate-related
investments. The Company is externally managed and advised by
MTGE Management, LLC, an affiliate of AGNC Investment Corp.
For further information, please refer to www.MTGE.com.
FORWARD LOOKING STATEMENTS
This press release contains
forward-looking statements. Forward-looking statements are
based on estimates, projections, beliefs and assumptions of
management of the Company at the time of such statements and are
not guarantees of future performance or results.
Forward-looking statements involve risks and uncertainties in
predicting future results and conditions. Actual results
could differ materially from those projected in these
forward-looking statements due to a variety of important factors,
including, without limitation, changes in interest rates, changes
in the yield curve, changes in prepayment rates, the availability
and terms of financing, changes in the market value of the
Company's assets, the receipt of regulatory approval or other
closing conditions for a transaction, general economic conditions,
market conditions, conditions in the market for agency and
non-agency securities and mortgage related investments, and
legislative and regulatory changes that could adversely affect the
business of the Company. Certain important factors that could
cause actual results to differ materially from those contained in
the forward-looking statements, are included in the Company's
periodic reports filed with the Securities and Exchange Commission
("SEC"). Copies are available on the SEC's website,
www.sec.gov. The Company disclaims any obligation to update
or revise any forward-looking statements based on the occurrence of
future events, the receipt or new information, or otherwise.
USE OF NON-GAAP FINANCIAL INFORMATION
In addition to
the results presented in accordance with GAAP, the Company's
results of operations discussed in this release include certain
non-GAAP financial information, including "net spread and dollar
roll income," "net spread and dollar roll income, excluding
'catch-up' premium amortization," "estimated taxable income" and
the related per common share measures and certain financial metrics
derived from such non-GAAP information, such as "cost of funds" and
"net interest rate spread."
"Net spread and dollar roll income" is measured as (i) net
interest income (GAAP measure) adjusted to include other interest
rate swap periodic costs, TBA dollar roll income and dividends on
REIT equity securities (referred to as "adjusted net interest and
dollar roll income") less (ii) total operating expenses (GAAP
measure) adjusted to exclude non-recurring transaction costs. "Net
spread and dollar roll income, excluding "catch-up" premium
amortization," further excludes retrospective "catch-up"
adjustments to premium amortization cost or benefit due to changes
in projected CPR estimates.
By providing users of the Company's financial information with
such measures in addition to the related GAAP measures, the Company
believes users will have greater transparency into the information
used by the Company's management in its financial and operational
decision-making. The Company also believes it is important
for users to consider information related to its current financial
performance without the effects of certain measures that are not
necessarily indicative of its current or expected investment
portfolio performance and operations.
Specifically, in the case of "net spread and dollar roll
income," the Company believes the inclusion of TBA dollar roll
income is meaningful as TBAs, which are accounted for under GAAP as
derivative instruments with gains and losses recognized in other
gain (loss) in the Company's statement of operations, are
economically equivalent to holding and financing generic agency MBS
using short-term repurchase agreements. Similarly, the Company
believes that the inclusion of periodic interest rate swap
settlements, which are recognized under GAAP in other gain (loss),
is meaningful as interest rate swaps are the primary instrument
used to economically hedge against fluctuations in the Company's
borrowing costs and the inclusion of all periodic interest rate
swap settlement costs is more indicative of the Company's total
cost of funds than interest expense alone. In the case of "net
spread and dollar roll income, excluding 'catch-up' premium
amortization," the Company believes the exclusion of "catch-up"
adjustments to premium amortization cost or benefit is meaningful
as it excludes the cumulative effect from prior reporting periods
due to current changes in future prepayment expectations and,
therefore, exclusion of such cost or benefit is more indicative of
the current and expected earnings potential of the Company's
investment portfolio. The Company also believes the exclusion of
non-recurring costs associated with the American Capital, Ltd.
strategic review process and subsequent acquisition of the
Company's external manager by AGNC Investment Corp. reported in
general and administrative expense under GAAP is meaningful as they
are not representative of ongoing operating costs. In the case of
estimated taxable income, the Company believes it is meaningful
information as it is directly related to the amount of dividends
the Company is required to distribute in order to maintain its REIT
qualification status.
However, because such measures are incomplete measures of the
Company's financial performance and involve differences from
results computed in accordance with GAAP, they should be considered
as supplementary to, and not as a substitute for, results computed
in accordance with GAAP. In addition, because not all companies use
identical calculations, the Company's presentation of such non-GAAP
measures may not be comparable to other similarly-titled measures
of other companies. Furthermore, estimated taxable income can
include certain information that is subject to potential
adjustments up to the time of filing the Company's income tax
returns, which occurs after the end of its fiscal year.
A reconciliation of GAAP net interest income to non-GAAP net
spread and dollar roll income, excluding "catch-up" premium
amortization and a reconciliation of GAAP net income to non-GAAP
estimated taxable income is included in this release.
CONTACT:
Investors - (301) 968-9220
Media - (301) 968-9215
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SOURCE MTGE Investment Corp.