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MTGE Investment Corp. Announces Third Quarter 2017 Financial Results
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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.