American Capital Mortgage Investment Corp's CEO Discusses Q2 2012 Results - Earnings Call Transcript

American Capital Mortgage Investment Corp (MTGE)

Q2 2012 Earnings Call

August 06, 2012 11:00 am ET

Executives

Hannah Rutman - Investor Relations

Gary Kain - President & CIO, American Capital Mortgage Investment Corp. &

President, American Capital MTGE Management, LLC

Jeff Winkler - SVP & Co-CIO, American Capital Mortgage Investment Corp; and SVP, American Capital MTGE Management, LLC

Peter Federico - SVP & CRO, American Capital Mortgage Investment Corp; and SVP & CRO, American Capital MTGE Management, LLC

Chris Kuehl - SVP, Agency Portfolio Investments, American Capital Mortgage Investment Corp; and SVP, American Capital MTGE Management, LLC

Analysts

Douglas Harter - Credit Suisse

Joel Houck - Wells Fargo

Presentation

Operator

Good morning, and welcome to the American Capital Mortgage second quarter 2012 shareholder call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Hannah Rutman in Investor Relations. Please go ahead.

Hannah Rutman

Thank you Valarie and thank you all for joining the American Capital Mortgage Investment Corp second quarter 2012 earnings call.

Before we begin, I’d like to review the Safe Harbor statement. This conference call and corresponding slide presentation contains statements that to the extent they are not recitations of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All such forward-looking statements are intended to be subject to the Safe Harbor protection provided by the Reform Act. Actual outcomes and results may differ materially from those forecast due to the impact of many factors beyond the control of MTGE. All forward-looking statements included in this presentation are made only as of the date of the presentation and are subject to change without notice.

Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in our periodic reports filed with SEC. Copies of these reports are available on the SEC’s website. We disclaim any obligation to update our forward-looking statements unless required by law.

To view a webcast of the presentation, access our website mtge.com and click on the earnings presentation link in the upper right corner. An archive of this presentation will be available on our website and a telephone of this call can be accessed through August 21st, by dialing 877-344-7529 using the conference ID 10015856.

Participating on today’s call are Malon Wilkus, Chairman and Chief Executive Officer; Sam Flax, Executive Vice President and Secretary; Gary Kain, President and Chief Investment Officer; Jeff Winkler, Senior Vice President and Co-Chief Investment Officer; Peter Federico, Senior Vice President and Chief Risk Officer; Chris Kuehl, Senior Vice President in Agency Mortgage Investments; Jason Campbell, Senior Vice President and Head of Asset and Liability Management; and Don Holley, Vice President and Controller. With that I will turn the call over to Gary Kain.

Gary Kain

Thanks Hannah and thanks to all of you for your interest in MTGE. We feel really good about MTGE’s performance both this quarter and since our IPO. During the quarter, MTGE was able to continue to pay an attractive dividend while growing book value for the third straight quarter. Economic returns which include both the dividend and book value growth equate to a 22% annualized return.

Since going public in August 2011, we have paid $2.80 per share in dividends and grown our book value over 10%. The combination of these two measure equates to economic returns of around 24% and it is not even been a full year. Over the same time period, MTGE has been able to grow its market cap from 200 million at the IPO to over 800 million as of today via two follow-on offerings that improved both operating efficiencies and the liquidity of the stock.

Importantly these offerings were executed in a manner that is supportive of shareholder value creation. We remain committed to exercising the same discipline going forward with respect to both equity offerings and the management of the business.

Looking ahead we feel really good about how MTG is positioned. The current landscape is one where interest rates were at rapid lows, the yield curve is considerably flatter and where many market participants starting to become more optimistic about the housing market.

Against this back drop of both our agency and non-agency assets should continue to provide attractive risk-adjusted returns across a range of different economic scenarios. Along these lines, performance quarter to date has been very strong. So we currently have a good tailwind behind book value at this point.

With that let's review the highlights for the quarter on slide 2. Net income which incorporates both realized and unrealized gains and losses on both assets and hedges was a $1.15 per share. Net spread income which excludes $0.35 of investment-related gains came in at $0.80 per share. The decline in net spread income during the quarter was a function of number of different factors including faster prepayment projections and higher swap costs, new purchases at lower yields and lower average leverage.

The bottom line though is the relative size of our mid-quarter equity raise does make quarter-over-quarter comparisons somewhat less instructive. Taxable net income totaled $0.89 on average shares of $28.1 million for the quarter. Now as you know we paid a dividend of $0.90 and since the dividend was paid on ending shares, our undistributed taxable income dropped to $0.11 as of June 30.

Read the rest of this transcript for free on seekingalpha.com

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