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Summary

  • I am projecting AGNC will report a net unrealized gain (loss) on available-for-sale securities of $775 million for the first quarter of 2014.
  • I am projecting AGNC will report a net unrealized gain (loss) on interest rate swaps of $45 million for the first quarter of 2014.
  • I am projecting AGNC will report other comprehensive income (loss) of $820 million for the first quarter of 2014.
  • I am projecting AGNC will report comprehensive income (loss) of $408 million for the first quarter of 2014.
  • I am projecting AGNC will report comprehensive income (loss) of $1.14 per share for the first quarter of 2014.

Author's Note: PART 3 of this article is a continuation from PART 2 which was discussed in a previous publication. PART 2 of this article was a continuation from PART 1 which was also discussed in a previous publication. Please see PART 1 of this article for a detailed projection of American Capital Agency Corp.'s (NASDAQ:AGNC) income statement for the first quarter of 2014 regarding the following accounts: 1) interest income; 2) interest expense; and 3) gain (loss) on sale of agency securities, net. Please see PART 2 of this article for a detailed projection of American Capital Agency Corp.'s income statement for the first quarter of 2014 regarding the following accounts: 4) gain (loss) on derivative instruments and other securities, net (including four "sub-accounts"); and 5) management fees. PART 2 also discussed AGNC's projected net income and earnings per share ('EPS') amounts. PART 1 and PART 2 helps lead to a better understanding of the topics and analysis that will be discussed in PART 3. The links to PART 1's and PART 2's analysis are provided below:

American Capital Agency's Upcoming Q1 2014 Income Statement Projection (Part 1)

American Capital Agency's Upcoming Q1 2014 Income Statement Projection (Part 2)

This three-part article is a very detailed look at AGNC's income statement. I perform this detailed analysis for readers who anticipate/want such an analysis performed each quarter. For readers who just want the summarized account projections, I would suggest to scroll down to the "Conclusions Drawn" section at the bottom of the each part of the article.

Focus of Article:

The focus of PART 3 of this article is to provide a detailed projection of American Capital Agency Corp.'s income statement for the first quarter of 2014 regarding the following accounts: 6) "unrealized gain (loss) on available-for-sale ('AFS') securities, net"; and 7) "unrealized gain (loss) on interest rate swaps, net". PART 3 will also discuss AGNC's projected other comprehensive income (loss) (OCI/(OCL)) and comprehensive income (loss) amounts.

Side Note: Predicting a company's accounting figures within the mortgage real estate investment trust (mREIT) sector is usually more difficult when compared to other sectors due to the various hedging and asset portfolio strategies that are implemented by management each quarter. As such, there are several assumptions used when performing such an analysis. AGNC's actual reported values may differ materially from my projected values within this article due to unforeseen circumstances. This could occur because management deviates from a company's prior business strategy and pursues a new strategy that was not previously disclosed. Readers should be aware as such. All projections within this article are my personal estimates and should not solely be used for any investor's buying or selling decisions. All actual reported figures that are above my ranges within this article will be deemed a positive sign in my judgment. All actual reported figures that are below my ranges within this article will be deemed a negative sign in my judgment. Unless otherwise noted, all figures below are for the "three-months ended" (quarterly) time frame.

B) Other Comprehensive Income (Loss) (OCI/(OCL)):

- OCI/(OCL) Estimate of $820 Million; Range $320 Million-$1.32 Billion

- Confidence Within Range = Moderate

- See Red Reference "B" in Tables 7 and 11 Below Next to the March 31, 2014 Column

Let us now take a look at AGNC's quarterly income statements for the trailing twelve-months going back to the first quarter of 2013 (ACTUAL) and my projection for the first quarter of 2014 (ESTIMATE) regarding the company's OCI/(OCL) and comprehensive income (loss) amounts. This information is provided in Table 7 below.

Table 7 - AGNC Quarterly OCI/(OCL) and Comprehensive Income (Loss) Projection

(click to enlarge)

(Source: Table created entirely by myself, partially using data obtained from AGNC's quarterly investor presentation slides)

Table 7 above is the main source of summarized data regarding AGNC's OCI/(OCL) and comprehensive income (loss) amounts. As such, all material accounts within Table 7 will be separately analyzed and discussed in corresponding order to the boxed blue references next to the March 31, 2014 column. PART 3 of this article will include an analysis on the following income statement accounts: 6) unrealized gain (loss) on AFS securities, net; and 7) unrealized gain (loss) on interest rate swaps, net.

6) Unrealized Gain (Loss) on AFS Securities, Net:

- Estimate of $775 Million; Range $275 Million-$1.28 Billion

- Confidence Within Range = Moderate to High

- See Boxed Blue Reference "6" in Table 7 Above and Table 11 Below Next to the March 31, 2014 Column

Projecting AGNC's unrealized gain (loss) on AFS securities, net account is an analysis that involves several assumptions and variables that need to be taken into consideration. Since this account takes into consideration the quarterly valuation changes on AGNC's MBS portfolio (by far the largest asset class on the company's balance sheet), a wider range should be accompanied with this specific account. The same assumptions used within AGNC's gain (loss) on sale of agency securities, net account (see PART 1 of article) and gain (loss) on derivative instruments and other securities, net account (regarding the company's TBA MBS and forward settling MBS; see PART 2 of article) will be applied when analyzing this account.

Let us discuss the history of this account which will lead to a better explanation of my projected gain (loss) for the first quarter of 2014. As was initially discussed in PART 1 of this article, the total cost basis of AGNC's MBS portfolio was $85.8 billion as of 9/30/2013. However, this balance was reduced to only $67.0 billion as of 12/31/2013. AGNC was aggressively selling the company's lowest fixed-rate agency MBS coupons to mitigate BV erosion in a rising interest rate environment. As AGNC continued to sell-off the company's lowest fixed-rate agency MBS coupons, management "re-rolled" the portfolio into higher yielding coupons. This included the continued "rebalancing" of AGNC's proportion of 15- and 30-year fixed-rate agency MBS coupons.

Since most fixed-rate agency MBS prices materially decreased during the fourth quarter of 2013, when combining both of AGNC's realized gain (loss) on sale of agency securities, net and unrealized gain (loss) on AFS securities, net accounts together, the company reported a net valuation gain (loss) of ($978) million for the fourth quarter of 2013. After AGNC's realized net valuation gain (loss) of ($667) million was reversed-out, the company's total net unrealized gain (loss) on AFS securities was ($311) million for the fourth quarter of 2013.

Having established what occurred to the company's MBS portfolio during the prior quarter, let us now take a look at AGNC's unrealized gain (loss) on AFS securities, net account for the first quarter of 2014. Before we begin to analyze the MBS price movements for the first quarter of 2014, it should be noted I am making the assumption AGNC will continue the company's recent strategy regarding MBS purchases and sales. As such, AGNC will continue to sell a modest portion of the company's lowest fixed-rate agency MBS coupons (originally discussed in PART 1 of this article). Out of AGNC's net long (short) TBA MBS and forward settling MBS position of $2.1 billion as of 12/31/2013, ($4.1) billion of this balance was for 15-year maturities with a weighted average coupon of only 2.92% while $6.4 billion was for 30-year maturities with a weighted average coupon of 4.06%. Therefore, I am assuming AGNC continued to re-roll a modest portion of the company's lowest fixed-rate agency MBS coupons into the following during the first quarter of 2014: 1) higher-coupon 15-year fixed-rate agency MBS; and 2) higher-coupon 30-year fixed-rate agency MBS.

Prior to performing an account projection analysis, let us first analyze the fixed-rate agency MBS price movements during the first quarter of 2014. Using Table 8 below as a reference, let us first analysis the 15-year fixed-rate agency MBS price movements. This will then be followed by a similar analysis (via Table 9) of the 30-year fixed-rate agency MBS price movements. By analyzing the 15- and 30-year fixed-rate agency MBS price movements, it will help us better understand how I come up with my projected valuations discussed later in the article.

Table 8 - 15-Year Fixed-Rate Agency MBS Price Movements (During the First Quarter of 2014)

(click to enlarge)

(Source: Table created entirely by myself, using privately-assessed MBS pricing data from my company's intranet resources [courtesy of Thomson Reuters])

Table 8 above shows the 15-year fixed-rate agency MBS price movements during the first quarter of 2014. It breaks out the 15-year fixed-rate agency MBS holdings by government-sponsored entity ('GSE'). This includes both Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) MBS. As of 12/31/2013, AGNC's Ginnie Mae holdings accounted for less than 0.5% of the company's MBS portfolio. As such, Ginnie Mae fixed-rate agency MBS price movements are deemed immaterial for discussion purposes and thus excluded from this table. Table 8 further breaks out the 15-year fixed-rate agency MBS price movements into the various coupons on AGNC's books ranging from 2.5%-4.5%. AGNC holds an immaterial balance of 15-year fixed-rate agency MBS over the 4.5% coupon and thus these specific coupons are excluded from Table 8 above.

From the information portrayed in Table 8 above, a valuation gain (loss) can be calculated which is broken down by the various coupons. This valuation gain (loss) is performed in Table 10 later in the article. An exact valuation figure cannot be obtained because AGNC continually changes the company's portfolio holdings in a given quarter. As such, I must determine specific purchase and sale assumptions towards the end of my account projection analysis.

Using Table 8 as a reference, let us look at the 15-year fixed-rate agency MBS price movements for the current quarter regarding a few of the coupon rates where AGNC held a material MBS balance as of 12/31/2013. The cumulative quarterly net MBS price movements for each coupon rate are shown within Table 8 under the "Cumulative Quarterly Change" column. To illustrate, during the first quarter of 2014, the Fannie 15-year fixed-rate agency MBS with a 2.5% coupon had a cumulative quarterly price increase of 1.02 to settle its price at 99.94 (100 being par). The Fannie 15-year fixed-rate agency MBS with a 3.0% coupon had a cumulative quarterly MBS price increase of 0.76 to settle its price at 102.73 (100 being par). The Fannie 15-year fixed-rate agency MBS with a 3.5% coupon (AGNC's largest 15-year fixed-rate agency MBS position as of 12/31/2013) had a cumulative quarterly MBS price increase of 0.34 to settle its price at 104.84 (100 being par).

Still using Table 8 above as a reference, when evaluating all coupons, AGNC's Fannie 15-year fixed-rate agency MBS had a variety of cumulative quarterly MBS price changes during the first quarter of 2014. A material 15-year fixed-rate agency MBS price increase occurred on the 2.5% and 3.0% coupons. A modest 15-year fixed-rate agency MBS price increase occurred on the 3.5% coupon. A minor to modest 15-year fixed-rate agency MBS price decrease occurred on the 4.0% and 4.5% coupons.

When compared to the Fannie 15-year fixed-rate agency MBS, the Freddie 15-year fixed-rate agency MBS had slight differences in weekly (hence cumulative quarterly) price valuations across the same coupons. As will be shown in Table 10 later in the article, the minor price fluctuations between the two types of 15-year fixed-rate agency MBS only had a minor impact on differing valuations. Now that we have an understanding of the 15-year fixed-rate MBS price movements during the first quarter of 2014, let us take a look at the 30-year fixed-rate agency MBS price movements.

Table 9 - 30-Year Fixed-Rate Agency MBS Price Movements (During the First Quarter of 2014)

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(Source: Table created entirely by myself, using privately-assessed MBS pricing data from my company's intranet resources [courtesy of Thomson Reuters; link provided below Table 8])

Table 9 above shows the 30-year fixed-rate agency MBS price movements during the first quarter of 2014. It breaks out the 30-year fixed agency MBS holdings by GSE. As was the case with the 15-year fixed-rate agency MBS, this includes both Fannie Mae and Freddie Mac holdings. As stated earlier, AGNC's Ginnie Mae fixed-rate agency MBS holdings are deemed immaterial for discussion purposes. As such, Ginnie Mae fixed-rate agency MBS price movements are excluded from this table. Table 9 further breaks out the 30-year fixed-rate agency MBS price movements into the various coupons on AGNC's books ranging from 3.0%-5.0%. AGNC holds an immaterial balance of 30-year fixed-rate agency MBS over the 5.0% coupon and thus these specific coupons are excluded from Table 9 above.

From the information portrayed in Table 9 above, a valuation gain (loss) can be calculated which is broken down by the various coupons. This valuation gain (loss) is performed in Table 10 later in the article. An exact valuation figure cannot be obtained because AGNC continually changes the company's portfolio holdings in a given quarter. As such, I must determine specific purchase and sale assumptions towards the end of my account projection analysis.

Using Table 9 as a reference, let us look at the 30-year fixed-rate agency MBS price movements for the current quarter regarding a few of the coupon rates where AGNC held a material MBS balance as of 12/31/2013. The cumulative quarterly net MBS price movements for each coupon rate are shown within Table 9 above under the "Cumulative Quarterly Change" column. To illustrate, during the first quarter of 2014, the Fannie 30-year fixed-rate agency MBS with a 3.0% coupon had a cumulative quarterly price increase of 1.65 to settle its price at 96.58 (100 being par). The Fannie 30-year fixed-rate agency MBS with a 3.5% coupon had a cumulative quarterly MBS price increase of 1.29 to settle its price at 100.64 (100 being par). The Fannie 30-year fixed-rate agency MBS with a 4.0% coupon (AGNC's largest 30-year fixed-rate agency MBS position held as of 12/31/2013) had a cumulative quarterly MBS price increase of 1.03 to settle its price at 103.97 (100 being par). The Fannie 30-year fixed-rate agency MBS with a 4.5% coupon had a cumulative quarterly MBS price increase of 0.75 to settle its price at 106.72 (100 being par).

Still using Table 9 as a reference, when evaluating all coupons, it looks like AGNC's Fannie 30-year fixed-rate agency MBS had a modest to material cumulative quarterly MBS price increase during the first quarter of 2014. A material 30-year fixed-rate agency MBS price increase occurred on the 3.0%-4.5% coupons with the materiality level decreasing as the coupon increased. A modest 30-year fixed-rate agency MBS price increase occurred on the 5.0% coupon.

When compared to the Fannie 30-year fixed-rate agency MBS, the Freddie 30-year fixed-rate agency MBS had slight differences in weekly (hence cumulative quarterly) price valuations across the same coupons. As will be shown in Table 10 later in the article, the minor price fluctuations between the two types of 30-year fixed-rate agency MBS only had a minor impact on differing valuations. Now that we have an understanding of the 15- and 30-year fixed-rate agency MBS price movements during the first quarter of 2014, let us take a look at how these price movements affected AGNC's MBS portfolio regarding the company's weekly and cumulative quarterly valuations (quantified in dollar amounts).

Table 10 - AGNC Summarized Weekly and Cumulative Quarterly Fixed-Rate MBS Portfolio Valuation Gain (Loss) (During the First Quarter of 2014)

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(Source: Table created entirely by myself, including all calculated figures and projected valuations)

Table 10 above first shows AGNC's weekly and cumulative quarterly projected valuation gain (loss) on the company's 15- and 30-year fixed-rate agency MBS holdings across all coupons (including immaterial coupons omitted from Table 8 and Table 9 above). For this specific analysis, Table 10 quantifies the projected cumulative quarterly net valuation gain (loss) for the first quarter of 2014 in dollar amounts.

Using Table 10 above as a reference, I am projecting an "initial" total net valuation gain (loss) of $445 million on AGNC's 15- and 30-year fixed-rate agency MBS holdings for the first quarter of 2014 (see blue reference "A" in Table 10 above). However, as stated earlier, several other adjustments need to be performed prior to a final projection is made for AGNC's unrealized gain (loss) on AFS securities, net account.

Since AGNC currently has a material amount of the company's fixed-rate agency MBS within "specified pools" (prepayment protected MBS; mainly through the Home Affordable Refinance Program (HARP) and low-loan balance (LLB) securities), a quarterly valuation adjustment needs to be projected.

Since I am projecting only an additional minor net valuation gain on AGNC's fixed-rate agency MBS within specified pools (HARP and LLB securities) for the first quarter of 2014, I would refer readers to my prior quarter's article for a full discussion of this topic. The link to the prior quarter's article is provided below:

American Capital Agency's Upcoming Q4 2013 Income Statement Projection (Part 3)

Still using Table 10 above as a reference, through a detailed calculation that will be omitted from this particular article, I am projecting an additional net valuation gain (loss) of $55 million for the first quarter of 2014 in regards to the following agency MBS holdings: 1) specified pools (HARP and LLB securities); 2) 20-year fixed-rate; 3) collateralized mortgage obligations ('CMO'); and 4) adjustable-rate mortgages ('ARM') (see blue reference "B" in Table 10 above).

Also, when considering the effects of the newly converted net long (short) TBA MBS and forward settling MBS position of $2.1 billion and the company's realignment into higher MBS coupons throughout the quarter, I am projecting an additional net valuation gain (loss) of ($75) million for the first quarter of 2014 (see blue reference "C" in Table 10 above). I am projecting an "intra-quarter" net valuation loss on newly created positions because MBS prices initially materially increased in January 2014 but then modestly net decreased over the rest of the quarter. As such, a majority of MBS purchases in February and March 2014 most likely had a minor to modest net valuation loss. It is only prudent to take this consideration into effect.

Therefore, when all three net valuation gain (loss) figures are combined, I am projecting a total net valuation gain (loss) of $425 million on AGNC's MBS portfolio for the first quarter of 2014. This figure is PRIOR to all sold MBS being reversed out in the current quarter. As such, the final calculation within AGNC's unrealized gain (loss) on AFS securities, net account is the quarterly reversal of the company's MBS sales shown in Table 11 below. Remember, all MBS sales have already been accounted for within AGNC's income statement under the gain (loss) on sale of agency securities, net account (see PART 1 of the article). Thus, AGNC's realized valuation gain (loss) must be "reversed-out" of the company's unrealized gain (loss) on AFS securities, net account.

Table 11- AGNC Quarterly Unrealized Gain (Loss) on AFS Securities and Unrealized Gain (Loss) on Interest Rate Swaps, Net Projection

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(Source: Table created entirely by myself, partially using AGNC data obtained from the SEC's EDGAR Database)

Table 11 above shows AGNC's projected total net valuation gain (loss) of $425 million on the company's MBS portfolio (see red reference "AB" in Table 11 above). This amount is highlighted in teal. The second amount shown is AGNC's projected "reversal of prior period unrealized ('gain') loss, net, (upon realization)" figure (see red reference "AC" in Table 11 above). This amount is highlighted in pink and also has a boxed blue reference "3" next to the March 31, 2014 column. As stated earlier, this is the exact amount accounted for within AGNC's gain (loss) on sale of agency securities, net account (see PART 1 of the article).

Therefore, after AGNC's projected realized valuation gain (loss) of ($350) million is reversed-out, the company's total unrealized gain (loss) on AFS securities, net account is projected to be $775 million for the first quarter of 2014 (see red reference "(AB + AC) = AD" in Table 11 above). This amount is highlighted in grey.

Brief Discussion of MTGE's Unrealized Gain (Loss) on Sale of Agency Securities, Net Account:

I also see general similarities between AGNC and its sister company American Capital Mortgage Investment Company (NASDAQ:MTGE) regarding agency MBS portfolio strategies. As such, I see somewhat similar projections between AGNC's unrealized gain (loss) on AFS securities, net account and MTGE's "unrealized gain (loss) on sale of agency securities, net" account for the first quarter of 2014 (proportionally speaking). However, MTGE also had a non-agency MBS portfolio. MTGE's non-agency MBS portfolio has different valuation methods performed which are mainly based on specific indexes and simulated models. Due to this fact, MTGE also has an "unrealized gain (loss) on sale of non-agency securities, net" account that needs to be incorporated into the company's income statement. A discussion of MTGE's non-agency MBS portfolio is beyond the scope of this article.

7) Unrealized Gain (Loss) on Interest Rate Swaps, Net:

- Estimate of $45 Million; Range $40-$50 Million

- Confidence Within Range = High

- See Boxed Blue Reference "7" in Tables 7 and 11 Above Next to March 31, 2014 Column

Now let us take a look at AGNC's unrealized gain (loss) on interest rate swaps, net account. I show my projection for this figure in Table 11 above. AGNC's unrealized gain (loss) on interest rate swaps, net account consists of two "sub-accounts". The first sub-account is AGNC's "unrealized gain (loss) on interest rate swaps designated as cash flow hedges" (see red reference "AE" in Table 11 above). Since AGNC has discontinued accounting for the company's interest rate swaps as cash flow hedges, this balance will remain $0 for the first quarter of 2014. The second sub-account is AGNC's "reversal of prior period unrealized ('gain') loss on interest rate swaps, net (upon reclassification to interest expense)" (see red reference "AF" in Table 11 above). AGNC has elected to discontinue accounting for the company's interest rate swaps as cash flow hedges under Generally Accepted Accounting Principles ('GAAP') as of September 30, 2011. Each quarter, a portion of the remaining accumulated net deferred loss prior to the change in accounting treatment is reclassified out of the OCI/(OCL) account and into the interest expense account as it relates to AGNC's "de-designated" interest rate swaps.

As of 12/31/2013, AGNC had a remaining net deferred gain (loss) of ($296) million in the company's accumulated OCI/(OCL) account relating to these de-designated interest rate swaps. The net deferred gain (loss) that is expected to be reclassified from the OCI/(OCL) account and into the interest expense account over the next twelve months is ($156) million. Therefore, a reclassification of $45 million has been projected for the first quarter of 2014.

After combining the company's unrealized gain (loss) on AFS securities, net and unrealized gain (loss) on interest rate swaps, net accounts together, I am projecting AGNC will report OCI/(OCL) of $820 million for the first quarter of 2014 (see red reference "B" in Tables 7 and 11 above).

C) Comprehensive Income (Loss):

- Comprehensive Income (Loss) Estimate of $408 Million; Range ($92)-$908 Million

- Comprehensive Income (Loss) of $1.14 Per Share; Range ($0.27)-$2.55 Per Share

- Confidence Within Range = Moderate to High

- See Red Reference "C" in Table 7 Above Next to the March 31, 2014 Column

Finally, let us look at AGNC's comprehensive income (loss) for the first quarter of 2014. This is the summation of the following AGNC income statement amounts: A) net income (loss) of ($412) million (see PART 1 and PART 2 of the article); and B) OCI/(OCL) of $820 million (see analysis above). Therefore, when these two amounts are combined, I am projecting AGNC will report comprehensive income (loss) of $408 million for the first quarter of 2014.

Conclusions Drawn (PART 3):

To sum up all the information above, I am projecting AGNC will report the following income statement figures for the first quarter of 2014 (refer to Tables 7 and 11 above):

6) Quarterly Unrealized Gain (Loss) on AFS Securities, Net of $775 Million

7) Quarterly Unrealized Gain (Loss) on Interest Rate Swaps, Net of $45 Million

Mortgage interest rates/U.S. Treasury yields first materially decreased but then reversed course and slightly net increased throughout the remaining part of the first quarter of 2014. As such, cumulative quarterly MBS prices increased throughout most of the 15- and 30-year fixed-rate agency coupons for the first quarter of 2014. Through the detailed analysis performed above, AGNC's total unrealized gain (loss) on AFS securities, net account is projected to be $775 million for the first quarter of 2014. This projected valuation gain is materially higher when compared to the prior quarter's total net valuation gain (loss) of ($311) million.

I am also projecting AGNC will report an immaterial change in the company's unrealized gain (loss) on interest rate swaps, net account when compared to the prior quarter. When compared to the prior quarter, I am projecting a ($1) million decrease in this account to a valuation gain (loss) of $45 million for the first quarter of 2014. This slight decrease is due to the lower remaining net deferred loss on AGNC's de-designated interest rate swaps as of 12/31/2013 when compared to 9/30/2013.

Conclusions Drawn From PART 1, PART 2, and PART 3:

To sum up the analysis from all three parts of the article, I am projecting AGNC will report the following amounts for the first quarter of 2014:

A) Quarterly Net Income (Loss) of ($412) Million; ($1.17) Per Share

B) Quarterly OCI/(OCL) of $820 Million

C) Quarterly Comprehensive Income (Loss) (A and B Combined) of $408 Million; $1.14 Per Share)

AGNC's projected net income (loss) of ($412) million for the first quarter of 2014 is materially worse than the reported net income (loss) of ($101) million for the fourth quarter of 2013. This is mainly due to AGNC's projected net valuation gain (loss) of ($400) million on the company's derivative instruments and other securities, net account for the first quarter of 2014. For the same account in the prior quarter, AGNC recognized a net valuation gain (loss) of $184 million.

However, I am also projecting AGNC will report OCI/(OCL) of $820 million for the first quarter of 2014. This projected amount is materially higher when compared to an OCI/(OCL) of ($265) million for the fourth quarter of 2013. When compared to the prior quarter, this is a positive (negative) change of $1.09 billion. For one quarter's worth of change, this is a material positive swing for AGNC. The main culprit for the material change in AGNC's OCI/(OCL) amount was caused by mortgage interest rates/U.S. Treasury yields first materially decreasing but then reversing course and only slightly net increasing throughout the remaining part of the first quarter of 2014. As such, this led to cumulative quarterly MBS price increases throughout most of the 15- and 30-year fixed-rate agency coupons.

As a result of the company's projected net income (loss) of ($412) million and OCI/(OCL) of $820 million, I am projecting AGNC will report a comprehensive income (loss) of $408 million for the first quarter of 2014. When compared to a comprehensive income (loss) of ($366) million for the fourth quarter of 2013, this is a positive (negative) change of $774 million. For one quarter's worth of change, this is a material positive swing for AGNC.

As initially stated in prior articles, I believe the Federal Reserve ('FED') will continue to only gradually decrease (taper) the level of its third round of Quantitative Easing ('QE3'). As such, a rise in mortgage interest rates/U.S. Treasury yields should be "subdued" over the next 3-6 months (if not relatively flat). I believe we have seen this trend come to fruition during the first quarter of 2014. This generally bodes well for fixed-rate agency MBS prices and thus helps stabilize AGNC's BV. Remember, mortgage interest rates/U.S. Treasury yields "spiked" over the summer of 2013 as the market "priced in" an eventual end to the QE3 stimulus program.

Final Note on Upcoming BV Article: The projected amounts from this three-part article will have a direct impact on AGNC's projected BV as of 3/31/2014. My upcoming AGNC BV article will be available to readers prior to the company's earnings press release for the first quarter of 2014 on 4/28/2014.

Source: American Capital Agency's Upcoming Q1 2014 Income Statement Projection - Part 3