AGNC Investment's Q4 2019 Income Statement And Earnings Projection - Part 1 (Includes Current Recommendation)

Summary

  • This series projects AGNC’s income statement for the fourth quarter of 2019. These projections help readers understand how most of the fixed-rate agency mREIT sector performed (valuable insight).
  • First, I am projecting AGNC will report a minor increase in interest income for the fourth quarter of 2019 when compared to the prior quarter.
  • This is due to relatively unchanged cash interest income mainly being generated by AGNC’s on-balance sheet MBS portfolio and a minor decrease in the company’s recent elevated premium amortization expense.
  • Second, I am projecting AGNC will report a minor decrease in interest expense for the fourth quarter of 2019 when compared to the prior quarter.
  • Third, I am projecting AGNC will report a minor-modest gain on the sale of investment securities and record a minor-modest decrease in net spread and dollar roll income per share.
  • This idea was discussed in more depth with members of my private investing community, The REIT Forum. Get started today »

Author’s Note: This three-part article is a very detailed analysis of AGNC Investment Corp.’s (NASDAQ:AGNC) income statement (technically speaking, the company’s “consolidated statement of comprehensive income”). I continue to perform this type of detailed quarterly analysis for readers who want to fully understand AGNC’s ever-changing mortgage-backed securities (“MBS”)/investment portfolio and risk management strategies. The accounts/topics discussed within this series of articles are also valuable for any investor that has an interest within the fixed-rate agency and broader mortgage real estate investment trust (mREIT) sector. For readers who just want the summarized account projections, I would suggest to scroll down to the “Conclusions Drawn” section at the bottom of each part of the article.

Focus of Article:

The focus of this article is to provide a detailed projection of AGNC’s comprehensive income for the fourth quarter of 2019. Prior to results being provided to the public likely in late January (via the company’s quarterly press release), I would like to analyze AGNC’s consolidated statement of comprehensive income and provide readers a general direction on how I believe this recent quarter has panned out. I believe this quarter has a heightened level of importance to readers due to the recent events surrounding the Federal Open Market Committee’s (“FOMC”) decision regarding monetary policy and certain global macroeconomic events which impacted the yield curve. Specifically, there was heightened importance regarding the FOMC’s decision regarding the Federal (“Fed”) Funds Rate and movements within the London Interbank Offered Rate (LIBOR). Due to the length of the material covered, I believe it is necessary to break this projection article into three parts.

Side Note: Predicting a company’s accounting figures within the 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 multiple 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 (which has been a rare occurrence since I began covering AGNC over six years ago). Such variances could occur because management deviates from a company’s prior business strategy and pursues a new strategy that was not previously disclosed or anticipated. Readers should be aware of these possibilities. 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 the mean of my account projections will be deemed an “outperformance” in my judgment. All actual reported figures that are below the mean of my account projections will be deemed an “underperformance” in my judgment. Unless otherwise noted, all figures below are for the “three-months ended” (quarterly) timeframe.

By understanding the trends that occurred within AGNC’s operations during the fourth quarter of 2019, one can apply this information to sector peers as well. As such, the discussion/analysis below is not solely applicable to AGNC but to the fixed-rate agency mortgage real estate investment trust (mREIT) sector as a whole. This includes, but is not limited to, the following fixed-rate agency mREIT peers: 1) Arlington Asset Investment Corp. (AI); 2) ARMOUR Residential REIT Inc. (ARR); 3) Cherry Hill Mortgage Investment Corp. (CHMI); 4) Annaly Capital Management Inc. (NLY); and 5) Orchid Island Capital Inc. (ORC). Technically speaking, AI’s 2018 “entity status” was not a REIT per the Internal Revenue Code (“IRC”) but a C-Corporation. However, AI still maintained many “mREIT-like characteristics” including the type of investments held by the company, similar risk management strategies, and the amount of dividend distributions paid to shareholders. Beginning in 2019, AI “switched back” to a REIT entity per the IRC.

Consolidated Statement of Comprehensive Income (Loss) Overview:

Using Table 1 below as a reference, let us first look at AGNC's quarterly consolidated statement of comprehensive income for the fourth quarter of 2019 (ESTIMATE column). Table 1 also provides AGNC’s comprehensive income (loss) for the prior three quarters (ACTUAL columns) for comparative purposes.

Table 1 – AGNC Quarterly Consolidated Statements of Comprehensive Income (Loss)

AGNC Quarterly Consolidated Statements of Comprehensive Income (Loss)(Source: Table created by me, partially using data obtained from AGNC's quarterly investor presentation slides)

Table 1 above is the main source of summarized data regarding AGNC’s net income (loss) amount. As such, all material accounts within Table 1 will be separately analyzed and discussed in corresponding order to the boxed blue reference next to the December 31, 2019 column. PART 1 of this article will include an analysis of the following accounts: 1) interest income; 2) interest expense; and 3) gain (loss) on sale of investment securities, net. PART 2 of this article will include an analysis on the following account (including several “sub-accounts”): 4) gain (loss) on derivative instruments and other securities, net.

1) Interest Income:

  • Estimate of $695 Million; Range $645 - $745 Million
  • Confidence Within Range = Moderate to High
  • See Boxed Blue Reference “1” in Table 1 Above and Table 2 Below Next to the December 31, 2019 Column

AGNC’s interest income is comprised of the following two sub-accounts: a) cash interest income; andb) premium amortization, net. I show my projection for these two figures in Table 2 below. Some past (ACTUAL) figures within Table 2 are derived from AGNC’s 10-Q or 10-K where applicable. This excludes all recalculated figures and ratios. As such, there will not be an identical sheet AGNC provides that matches the data I have prepared in Table 2 below.

Table 2 – AGNC Quarterly Interest Income Projection

AGNC Quarterly Interest Income Projection(Source: Table created by me, partially using AGNC data obtained from the SEC’s EDGAR Database)

The first component of AGNC’s interest income is the company’s cash interest income sub-account. Two assumptions should be noted within Table 2 above when projecting AGNC’s cash interest income for the fourth quarter of 2019. First, I am projecting AGNC’s “average securities, at cost” balance increased by $4.9 billion (rounded) for the fourth quarter of 2019 when compared to the prior quarter ($97.6 billion versus $92.8 billion). I would consider this a minor increase. This is mainly due to a projected minor increase in AGNC’s MBS/investment portfolio as a direct result of portfolio reinvestment and changes in leverage. I am projecting AGNC kept the company’s 9/30/2019 on-balance sheet MBS/investment portfolio relatively unchanged, from a proportional and monetary value perspective, while maintaining a historically low net long “to-be-announced” (“TBA”) MBS position (which will be discussed in PART 2) during the fourth quarter of 2019 due to the projected continued preference of specified pool MBS versus generic TBA MBS.

Second, I am projecting a modest decrease to AGNC’s “weighted average coupon” (“WAC”) for the fourth quarter of 2019 when compared to the prior quarter (3.73% versus 3.86%). This projection factors in AGNC’s TBA MBS position, portfolio reinvestment, proportion of 15-year fixed-rate agency MBS versus 30-year, and the net movement of mortgage interest rates during the quarter. Still using Table 2 above as a reference, I am projecting a cash interest income increase of $7 million for the fourth quarter of 2019 when compared to the prior quarter ($875 million versus $868 million).

The second component of AGNC’s interest income is the company’s premium amortization, net sub-account. During a falling interest rate environment, generally an increase in prepayments will occur because a growing number of homeowners have mortgages that have higher interest rates when compared to current market interest rates. As such, the attractiveness of a mortgage refinance increases. As a result, prepayment risk generally increases while extension risk decreases. Therefore, the average life of AGNC’s fixed-rate agency MBS portfolio generally shortens. This would directly lead to a higher quarterly premium amortization expense. The exact opposite generally occurs during a rising interest rate environment. In addition, seasonality trends should also be considered when analyzing/projecting this account.

During the fourth quarter of 2019, mortgage interest rates/long-term U.S. Treasury yields “crept” higher during the first half which remained relatively unchanged through the end of the year. Through research, I have determined a majority of AGNC’s MBS holdings continued to experience an elevated “conditional prepayment rate” (“CPR”) percentage during the fourth quarter of 2019. However, towards the end of the quarter, CPR percentages were beginning to slowly creep lower. This includes considering intra-quarter strategies executed by management to combat an increased prepayment environment (higher coupon specified pool MBS and lower coupon generic MBS). As a whole, I also believe AGNC’s lifetime CPR as of 12/31/2019 only slightly decreased when compared to 9/30/2019’s already elevated percentage.

Using Table 2 above as a reference, including the assumption of a slightly larger average MBS balance (negative factor), slightly lower weighted average purchase price (movement into lower coupons; positive factor), and a slightly greater proportion of 30-year fixed-rate agency MBS versus 15-year during the quarter (positive factor), I am projecting a premium amortization, net expense decrease of ($12) million for the fourth quarter of 2019 when compared to the prior quarter ($180 million versus $192 million). I would point out AGNC, during the prior three quarters, already “factored in” higher lifetime CPR percentages which increased the company’s net premium amortization expense during the first, second, and third quarters of 2019. As such, I believe a notable “true-up” adjustment should not occur during the fourth quarter of 2019. With that being said, I am still projecting this specific expense remained elevated when compared to the past several years (expense has doubled in a little over a year).

When my projections for the cash interest income and premium amortization, net expense sub-accounts are combined, I am projecting AGNC’s interest income to increase by $19 million for the fourth quarter of 2019 when compared to the prior quarter ($695 million versus $676 million).

2) Interest Expense:

  • Estimate of $530 Million; Skewed Range $500 - $580 Million
  • Confidence Within Range = Moderate to High
  • See Boxed Blue Reference “2” in Table 1 Above and Table 3 Below Next to the December 31, 2019 Column

Now let us take a look at AGNC’s interest expense account. I show my projection for this figure in Table 3 below. Some past (ACTUAL) figures within Table 3 are derived from AGNC’s 10-Q or 10-K where applicable. This excludes all recalculated figures and ratios. I have gathered specific information derived from multiple tables/charts for a more detailed analysis of AGNC’s interest expense account.

Table 3 – AGNC Quarterly Interest Expense Projection

AGNC Quarterly Interest Expense Projection(Source: Table created by me, partially using AGNC data obtained from the SEC’s EDGAR Database [link provided below Table 2])

To project AGNC’s quarterly interest expense, one takes the quarterly average of the company’s outstanding repurchase agreements and multiplies this amount by the quarterly average cost of funds rate. Once this figure is calculated, one needs to back out a portion of the quarterly interest income (expense) in relation to AGNC’s interest rate payer swaps. This reclassified amount is accounted for within AGNC’s gain (loss) on derivative instruments and other securities, net account. This account will be projected in PART 2 of the article. The final calculated amount is AGNC’s quarterly interest expense figure. There is also another methodology that can be performed to project AGNC’s interest expense account (including a reclassification amount). However, for purposes of this article, I will solely focus on the methodology shown in Table 3 above.

Two assumptions should be noted within Table 3 when projecting AGNC’s quarterly interest expense figure for the fourth quarter of 2019. First, let us calculate an appropriate quarterly “average repurchase agreements” balance. Based on an earlier calculated figure within AGNC’s interest income account (see Table 2 above), I am projecting the company had a quarterly average securities, at cost balance of $97.6 billion for the fourth quarter of 2019. If one takes this figure and divides it by the quarterly average of AGNC’s outstanding repurchase agreements balance, a calculated “ratio of average securities versus average repurchase agreements” is projected. This ratio has been in a range of 1.05-1.10 during the prior three quarters. For the fourth quarter of 2019, I am using a ratio of 1.07. When calculated, this balance is projected to be $91.2 billion. This is a projected increase of $3.3 billion for the fourth quarter of 2019 when compared to the prior quarter ($91.2 billion versus $87.9 billion).

Second, let us now obtain a suitable quarterly “average cost of funds rate”. I am projecting a decrease of (9) basis points (“bps”) regarding AGNC’s average cost of funds rate for the fourth quarter of 2019 when compared to the prior quarter (1.84% versus 1.93%). While the change to this rate is only a small net decrease, I would point out this considers net rate movements within BOTH AGNC’s repurchase agreements and the company’s interest rate payer swaps. During the fourth quarter of 2019, these two rates/accounts had offsetting impacts to AGNC’s overall cost of funds rate. As mentioned earlier, all interest income (expense) in relation to AGNC’s interest rate payer swaps are reclassified out of this account. As such, a portion of the quarterly average cost of funds rate is not in relation to AGNC’s outstanding repurchase agreements. AGNC’s interest expense regarding the company’s outstanding repurchase agreements is based on a small fixed-rate percentage and a variable-rate percentage mainly based on LIBOR. During the fourth quarter of 2019, repurchase agreement interest rates had a slightly more beneficial decrease when compared to current/“spot” U.S. LIBOR. This relationship was positively impacted by the FOMC’s decision to be “active” in repurchase agreement (“repo”) markets to alleviate any short-term “spike” in overnight/ultra-short-term borrowing rates. This “backstop” per se positively impacted quarterly rates; even towards the end of the year which was a change when compared to historical year-end tendencies.

AGNC’s weighted average interest rate on the company’s outstanding repurchase agreements was 2.48% and 2.62% as of 9/30/2019 and 6/30/2019, respectively. However, it should be noted these percentages were “elevated” due to quarter-/year-end “spikes” in rates. U.S. LIBOR had a minor-modest net decrease across all tenors/maturities during the fourth quarter of 2019. This was mainly due to the market’s anticipation that the FOMC would continue to indicate a more “dovish”/cautious tone regarding overall U.S. monetary policy; via the three Fed Funds Rate 25 bp decreases during 2019 and the high probability of no increases through, in my opinion, at least the first half of 2020. As I have correctly stated for several years via articles and comments, once the Fed Funds Rate “lifted-off”, U.S. LIBOR would either immediately “follow suit” and increase by roughly the same bps or the market would anticipate such a move thus causing U.S. LIBOR to increase leading up to this event. The same holds true if there is a decrease to the Fed Funds Rate which is the main reason U.S. LIBOR decreased, across all maturities, during 2019.

Now, some readers may have read/noticed there was a “spike” in ultra-short/overnight repurchase agreement rates last quarter. In fact, the Fed intervened several times and injected capital into this market to alleviate liquidity concerns. More bearish mREIT market participants stated this would be a “death knell” to this sector as funding rates would “skyrocket”. However, as I correctly stated at the time, I believed this was a notable misconceived notion (simply look in last quarter’s article where I pointed this out). When it comes to AGNC and most sector peers, management utilizes repurchase agreements that typically have original maturities that range from 1-12 months. This especially recently held true when the yield curve was partially inverted during the summer of 2019. Simply put, longer-term repurchase agreement rates were slightly-modestly lower when compared to ultrashort-term rates. Repurchase agreement rates with a longer maturity were, at worst, only very slightly negatively impacted by this event. As such, as pointed out at the time, this had little to no impact on AGNC and most mREIT sector peers (perhaps elevated each company’s weighted average repurchase agreement rate by say 5-10 bps which was minimal). This was/is important to understand. As pointed out earlier in this article, the FOMC’s recent intervention into repo markets had a modest positive impact on suppressed rates during the fourth quarter of 2019. This positively impacted most (if not all) sector peers.

Now that we have determined AGNC’s average repurchase agreements balance and average cost of funds rate, let us calculate the company’s interest expense for the fourth quarter of 2019. Still using Table 3 above as a reference, after a projected reclassification of $115 million in relation to the net periodic interest income regarding AGNC’s interest rate swaps (seventh consecutive quarter interest income would be recorded/received by the company; very important to understand as this partially mitigates the 2018-2019 net increase in borrowing costs), I am projecting the company’s interest expense decreased by ($27) million for the fourth quarter of 2019 when compared to the prior quarter ($530 million versus $557 million).

3) Gain (Loss) on Sale of Investment Securities, Net:

  • Estimate of $90 Million; Range ($10) – $190 Million
  • Confidence Within Range = Moderate to High
  • See Boxed Blue Reference “3” in Table 1 Above Next to the December 31, 2019 Column

AGNC’s gain (loss) on sale of investment securities, net account can be somewhat difficult to accurately project at times. Through detailed research and data compilation, one can project (to a reasonable degree) how management “should” act within any given quarter regarding purchases and sales. However, I stress beforehand this will not be an “exact science” each quarter. There will be some variances that occur in a quarter if more/less sales and/or purchases actually occur versus originally projected. Additionally, unanticipated quarterly changes in the percentage of coupons/maturities held within the MBS portfolio would cause a slight deviation in asset valuations. At periodic intervals, management provides some clarity on the company’s intended strategy regarding investment sales when mortgage interest rates/long-term U.S. Treasury yields rise or fall. However, several assumptions still need to be made.

Therefore, this particular account is DIRECTLY tied to AGNC’s “unrealized gain (loss) on investment securities measured at fair market value (“FMV”) through net income, net” and “unrealized gain (loss) on available-for-sale (“AFS”) securities, net” accounts that will be discussed in PART 3 of this article. If AGNC’s gain (loss) on sale of investment securities, net actual amount is above or below my projected figure/range, the variance is automatically offset in these two other accounts. As such, my COMBINED projected figures would be accurately represented. This consideration has been proven correct in numerous prior quarters. In my professional opinion, these three accounts should really be looked at as one combined account. The unrealized gain (loss) on investment securities measured at FMV through net income, net and unrealized gain (loss) on AFS securities, net accounts have an immediate impact on BV while the gain (loss) on sale of investment securities, net account is merely a reclassification out of the unrealized account. Readers should understand this notion prior to this account’s analysis.

When compared to the prior quarter, I am anticipating a similar amount of activity within this account during the current quarter. As such, I am projecting an “investment sold, at cost” amount of ($7.5) billion for the fourth quarter of 2019. The more important figure to discuss is not the amount of investment securities sold but whether a gain (loss) occurred from the quarterly sales. As of 6/30/2019, AGNC had an accumulated other comprehensive loss (“OCL”) balance of ($164) million. This balance switched to an accumulated other comprehensive income (“OCI”) balance of $82 million as of 9/30/2019. The last time this cumulative balance was positive was three years ago. This is directly due to the notable 2019 MBS unrealized valuation gains that AGNC has recently recorded. With the minor net fluctuations in MBS pricing across most coupons during the fourth quarter of 2019 (analyzed in PART 3), the probability of the company recording a net gain within this account in future quarters has remained relatively unchanged. The total amount of AGNC’s net realized gain (loss) would be dependent on which particular investment securities were sold and at what time during the quarter these sales occurred.

When taking both factors above into consideration, I am projecting AGNC will report a net realized gain on the sale of investment securities of $90 million for the fourth quarter of 2019. This would be similar when compared to a net realized gain of $89 million during the prior quarter.

Conclusions Drawn (PART 1):

To sum up the analysis above, I am projecting AGNC will report the following account figures for the fourth quarter of 2019 (look back to Table 1 near the beginning of the article for quick reference):

1) Quarterly Interest Income of $695 Million

2) Quarterly Interest Expense of $530 Million

3) Quarterly Net Gain on the Sale of Investment Securities of $90 Million

First, I am projecting AGNC had a minor increase in interest income when compared to the prior quarter. I am projecting an increase of $19 million in this account due to the following factors regarding AGNC’s MBS/investment portfolio during the fourth quarter of 2019 (when compared to the prior quarter): 1) minor increase in the average securities balance (positive factor); 2) modest decrease in the WAC rate (negative factor); and 3) minor decrease in net premium amortization expense (positive factor; still elevated though).

Second, I am projecting AGNC had a minor decrease to the company’s interest expense figure when compared to the prior quarter. I am projecting a decrease of ($27) million in this account due to the following factors during the fourth quarter of 2019 (when compared to the prior quarter): 1) minor increase in AGNC’s average outstanding repurchase agreements balance (negative factor); and 2) modest decrease to the weighted average interest rate on the company’s outstanding repurchase agreements (positive factor).

Third, I am projecting AGNC had a minor net realized gain on the company’s investment securities sales during the fourth quarter of 2019. This projection is due to the following factors: 1) minor OCI balance as of 9/30/2019 (minor positive factor); and 2) minor fluctuation in fixed-rate agency MBS pricing across most coupons during the fourth quarter of 2019 (neutral factor).

My BUY, SELL, or HOLD Recommendation:

I decided to provide my AGNC recommendation to readers after PART 1 of this article so there is a better sense on my thoughts regarding the company’s current valuation (so readers do not have to wait until PART 3). I would stress beforehand this recommendation is based on ALL of my AGNC account projections, including accounts that will be discussed in PART 2 and PART 3. All I ask is to please be patient for PART 2 and PART 3. Also, please do not ask for my AGNC book value (“BV”) projection as of 12/31/2019 until it is provided in a future BV article (subscribers of the REIT Forum have access to my 12/31/2019 and CURRENT BV projections on all 21 mREIT stocks I cover prior to earnings/throughout the quarter).

From the analysis provided above, including additional catalysts/factors not discussed within this particular article, I currently rate AGNC as a SELL when I believe the company’s stock price is trading at or greater than my projected non-tangible CURRENT BV (BV as of 1/3/2020), a HOLD when trading at less than my projected non-tangible CURRENT BV through less than a (10%) discount to my projected non-tangible CURRENT BV, and a BUY when trading at or greater than a (10%) discount to my projected non-tangible CURRENT BV. These ranges are unchanged when compared to my last AGNC article (approximately two months ago).

Therefore, I currently rate AGNC as a HOLDsince the stock is trading at less than my projected non-tangible CURRENT BV through less than a (10%) discount to my projected non-tangible CURRENT BV.

Along with the data presented within this article, this recommendation considers the following mREIT catalysts/factors: 1) projected future MBS/investment price movements; 2) projected future derivative valuations; and 3) projected near-term dividend per share rates. This recommendation also considers the four Fed Funds Rate increases by the FOMC during 2018 (this was a more hawkish tone/rhetoric when compared to most of 2017) and the three Fed Funds Rate decreases during 2019 due to the recent dovish tone/rhetoric regarding overall monetary policy as a result of recent macroeconomic trends/events. This also considers the wind-down/decrease of the Fed’s balance sheet through gradual runoff/partial non-reinvestment (which began in October 2017 which increased spread/basis risk) and the recent “easing” of this wind-down starting in May 2019 regarding U.S. Treasuries and August 2019 regarding agency MBS (which should partially reduce spread/basis risk when volatility remains subdued; as I correctly projected markets would experience during the fourth quarter of 2019).

Each investor's BUY, SELL, or HOLD decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader’s current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.

Current/Recent mREIT Sector Stock Disclosures:

On 6/29/2017, I initiated a position in CHMI at a weighted average purchase price of $18.425 per share. On 10/6/2017, 10/26/2017, 11/6/2017, 1/29/2018, 10/12/2018, 6/6/2019, 7/23/2019, and 9/5/2019 I increased my position in CHMI at a weighted average purchase price of $18.015, $18.245, $17.71, $17.145, $17.235, $16.315, $15.325, and $12.435 per share, respectively. When combined, my CHMI position has a weighted average purchase price of $13.739 per share (yes, my latest purchase was proportionately large). This weighted average per share price excludes all dividends received/reinvested. Each CHMI trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on CHMI.

On 8/31/2017, I initiated a position in CHMI’s Series A preferred stock, (CHMI.PA). On 9/12/2017, I increased my position in CHMI-A. When combined, my CHMI-A position has a weighted average purchase price of $25.198 per share. Each CHMI-A trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on CHMI.PA.

On 1/31/2017, I initiated a position in New Residential Investment Corp. (NRZ) at a weighted average purchase price of $15.10 per share. On 6/29/2017, 7/7/2017, and 12/21/2018, I increased my position in NRZ at a weighted average purchase price of $15.775, $15.18, and $14.475 per share, respectively. When combined, my NRZ position has a weighted average purchase price of $14.912 per share. This weighted average per share price excludes all dividends received/reinvested. Each NRZ trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on NRZ.

On 1/29/2018, I initiated a position in Two Harbors Investment Corp. (TWO) at a weighted average purchase price of $15.155 per share. On 4/17/2019, I increased my position in TWO at a weighted average purchase price of $13.165 per share. When combined, my TWO position has a weighted average purchase price of $13.825 per share. This weighted average per share price excludes all dividends received/reinvested. Each TWO trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on TWO.

On 3/8/2018, I initiated a position in New York Mortgage Trust, Inc.’s (NYMT) Series D preferred stock, (NYMTN). On 4/6/2018, 4/27/2018, 10/12/2018, 12/7/2018, 12/18/2018, and 12/21/2018 I increased my position in NYMTN. When combined, my NYMTN position has a weighted average purchase price of $22.379 per share. This weighted average per share price excludes all dividends received/reinvested. Each NYMTN trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on NYMTN.

On 10/12/2018, I initiated a position in Granite Point Mortgage Trust, Inc. (GPMT) at a weighted average purchase price of $18.155 per share. This weighted average per share price excludes all dividends received/reinvested. This GPMT trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on GPMT.

On 10/12/2018, I initiated a position in AG Mortgage Investment Trust Inc. (MITT) at a weighted average purchase price of $17.105 per share. On 4/17/2019 and 6/3/2019, I increased my position in MITT at a weighted average purchase price of $16.22 and $15.52 per share, respectively. When combined, my MITT position has a weighted average purchase price of $15.946 per share. This weighted average per share price excludes all dividends received/reinvested. Each MITT trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on MITT.

On 6/3/2019, I initiated a position in ARR at a weighted average purchase price of $17.545 per share. On 9/10/2019, I increased my position in ARR at a weighted average purchase price of $16.785 per share. When combined, my ARR position has a weighted average purchase price of $16.975 per share. This weighted average per share price excludes all dividends received/reinvested. This ARR trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on ARR.

On 6/3/2019, I initiated a position in Invesco Mortgage Capital Inc. (IVR) at a weighted average purchase price of $15.49 per share. This weighted average per share price excludes all dividends received/reinvested. This IVR trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on IVR.

On 11/22/2019, I initiated a position in Anworth Mortgage Asset Corp. (ANH) at a weighted average purchase price of $3.475 per share. This weighted average per share price excludes all dividends received/reinvested. This ANH trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on ANH.

On 11/22/2019, I initiated a position in AI’s Senior Notes Due 2023 (AIW) at a weighted average purchase price of $24.13 per share ($25 being par). This weighted average per share price excludes all interest received/compounded. This AIW trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on AIW.

On 12/31/2019, I initiated a position in AI’s Senior Notes Due 2025 (AIC) at a weighted average purchase price of $24.00 per share ($25 being par). This weighted average per share price excludes all interest received/compounded. This AIC trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on AIC.

On 1/2/2020, I initiated a position in AI at a weighted average purchase price of $5.57 per share. This weighted average per share price excludes all dividends received/reinvested. This AI trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on AI.

Final Note: All trades/investments I have performed over the past several years have been disclosed to readers in real time (that day at the latest) via the StockTalks feature of Seeking Alpha (which cannot be changed/altered). Through this resource, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered). Through StockTalk disclosures, at the end of December 2019 I had an unrealized/realized gain “success rate” of 95.8% and a total return (includes dividends received) success rate of 97.9% out of 48 total past and present positions (updated monthly; multiple purchases/sales in one stock count as one overall position until fully closed out). I have yet to realize a “total loss” in any of my past positions. Both percentages experienced a minor increase in October and November 2019 due to the continued reversal of the previous sell-off within the mREIT sector; mainly due to a partial easing of fears of narrowing net spreads and higher prepayments.

I am currently "teaming up" with Colorado Wealth Management to provide intra-quarter CURRENT BV per share projections on all 21 mREIT stocks I currently cover.  These very informative (and “premium”) projections are provided through Colorado's S.A. Marketplace service.  I also provide "rapid-fire" mREIT quarterly earnings articles. In late October 2019, I have expanded my services via additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT articles. In late November 2019, I have expanded my services to include BDC data/analytics, continuous sector recommendations (including ranges), and exclusive articles.

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Author of The REIT Forum
The #1 REIT Service For Those Targeting Strong Total Returns
Note: I am currently "teaming up" with Colorado Wealth Management to provide weekly CURRENT BV and NAV per share projections on all 20 mREIT and 15 BDC stocks I currently cover. These very informative (and “premium”) projections are provided through Colorado's S.A. Marketplace service, The REIT Forum. In addition, this includes additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT and BDC "rapid fire" chat notes immediately after earnings (followed by subsequent earnings assessment articles).


Below are the stocks I currently cover (as of Summer 2022):


Stocks Covered (20 mREITs; 15 BDCs): AGNC, AINV, AAIC, ARCC, ARR, BXMT, CHMI, CIM, CMO, DX, EFC, FSK (formerly FSIC), GAIN, GBDC, GPMT, IVR, MAIN, MFA, MITT, NEWT, NLY, NRZ, NYMT, OCSL (formerly FSC), ORC, ORCC, PFLT, PMT, PSEC, SLRC, TCPC, TSLX, TWO, TPVG (NEW), and WMC.

I cannot cover ABR or STWD in the mREIT sector due to indirect conflicts of interest.

Note: So, readers have continued to reach out and ask what I provide within Colorado Wealth Management’s Marketplace Service, the REIT Forum. I provide the following benefits vs. what I provide to the public:

1) Quarterly earning assessments of all 35 mREIT + BDC peers I cover. This includes rapid-fire "chat notes" the same day of earnings for each covered stock; followed by a detailed assessment article.

2) Subscribers can ask questions / engage in discussions with me daily via the REIT Forum chat feature (each weeknight and during the day on weekends). I answer all questions on the two sectors I cover. The REIT Forum’s chat feature takes precedence over my public responses and personal messages from non-subscribers.

3) Each week, I provide a “weekly recommendation” article (with tables for illustrative purposes) so readers can quickly find out which mREIT and BDC stocks have moved “in and out” of my BUY, SELL, or HOLD recommendation range. I believe this is highly valuable information that can lead to enhanced total returns or minimize an investor’s total losses.

4) For my mREIT articles, subscribers get “early looks” for all public articles I provide. This typically ranges from 2-3 days prior to public publication. For investors looking to “jump on” some of my ideas, prior to the general public being aware of such ideas, this is valuable.

5) Within the REIT Forum mREIT articles, subscribers are provided with one, or a combination of, the following benefits: a) additional tables; b) additional topics; and/or c) sector recommendation tables which are updated weekly using my CURRENT projected BVs for all 20 sector peers I cover. This includes access to sector “risk ratings”.

6) For my BDC articles, subscribers get “early looks” at all public articles I provide. This typically ranges from 2-3 days prior to public publication. For investors looking to “jump on” my ideas, prior to the general public being aware of such ideas, this is also valuable.

7) Within the REIT Forum BDC articles, subscribers are provided with one, or a combination of, the following benefits: a) additional tables; b) additional topics; and/or c) sector recommendation tables which are updated weekly using my CURRENT projected NAVs for all 15 sector peers I cover. This includes access to sector “risk ratings”.

8) In the future, I will be providing, for each BDC I cover, specific investment portfolio risk ratings, grouped on a scale of 1-5. This includes risk ratings on over 1000+ underlying portfolio companies. In addition, I will be providing monthly credit upgrades / downgrades on specific underlying portfolio companies. By having access to this valuable information, subscribers are provided “an edge” when it comes to assessing future BDC performance (which directly impacts stock price valuations).

9) I provide “real-time” chat messages regarding all purchase and sale decisions I make within my personal portfolio for the two sectors I cover. Over the past several years, I have provided such disclosures, for free, via the StockTalks feature of S.A. (for transparency and credibility). However, since this provides additional value for subscribers, I “transitioned” these real-time disclosures to subscribers of the REIT Forum. I will continue to disclose publicly all stock purchase and sale decisions. However, they will only be within each applicable sector article which won’t be in real-time (could be a few days later or could be a few weeks until readers see what moves I made outside the REIT Forum).

I hope this provides some additional clarity on what I specifically provide to Colorado’s the REIT Forum Marketplace service.

Summer 2017 PRO Promotion Recipient

StockTalk Unrealized/Realized Gain "Success Rate" as of 5/31/2022 (62 Past and Present mREIT + BDC Positions): 90.3%

StockTalk Total Return "Success Rate" as of 5/31/2022: 93.5%

I am a Certified Public Accountant (CPA) and Certified in Financial Forensics (CFF). I have also been a member of the American Institute of Certified Public Accountants (AICPA) for 24 years. My current title is partner at a national accounting firm. I have audit, tax, and consulting experience with entities in the following sectors: closed-end funds, energy, financials, healthcare, homebuilders, pharmaceuticals, private equity, REITs, and telecoms. I also have experience with C-corps., estates, high net worth individuals, LLCs, LLPs, S-corps., and trusts. I am an active investor. My investing fundamentals are based on both qualitative and quantitative information. By using my financial / analytical skills, I create specific investing ideas / strategies based on valuations and total returns. The two main sectors I currently provide articles on are mortgage real estate investment trusts (mREITs) and business development companies (BDCs).

Disclaimer: I cannot own and will not give an opinion on any investments my current employer has any direct or indirect professional services with (accounting, audit, tax, consulting, etc.). As such, most large-cap stocks are "off the table" regarding my articles. All accounting insight, analysis, and opinions stated within any articles I write (in regards to a specified stock) are entirely from my own personal research and analysis. I believe my articles are both informative and in some cases educational.

Note: A growing number of readers/investors, analysts, and representatives of firms have requested to be provided with my "spreadsheets/models" to help better understand certain companies/sectors. My researched data is several files of 350+ spreadsheets/models containing both stocks I write about on S.A. and stocks I choose to not write about on S.A. To reduce the repeated requests to provide such data, these spreadsheets/models are ALL linked together. As such, all current and future requests to "share" my data/models will be politely declined. Thanks for your understanding regarding this matter.

I appreciate my loyal readers and I’ll continue to try to provide high quality, in-depth articles.

Commonly Asked Questions:

Question 1): If you are only paid per article, why make your articles so long / detailed?

- I like to provide the “nuts and bolts” of a company. As such, I strive for my articles to have some sort of “hard to obtain” facts / figures. From this data, I like to fully discuss / analyze specific topics within a particular stock. This mainly consists of a quarterly projection article and a series of articles on a company’s dividend sustainability. In certain instances, I also write articles in regards to specific, material events that occur during a quarter.

- I believe a company’s quarterly results and upcoming dividend declarations are two of the most important topics readers are requesting information on. My analysis takes the “average” article several steps further to allow readers to have access to information that is rare to public viewership.

Question 2): How come you only write 1-2 articles a week (would like to see more)?

- As stated in my profile above, I have a full-time professional career. I write / analyze stocks in my free time. To provide these types of high quality / in-depth articles, I can’t see writing more than 2 articles a week. I believe “quality” should always be a higher priority versus “quantity”.

- As many readers should know by now (if you’ve followed me for a while), I'm not here for the monetary rewards. If that was the case, I’d write 5+ weekly articles and provide little to no engagement in each article’s comment section. I believe the comments section is as important as the article themselves b/c readers have a wide range of questions in relation to each article or the sector in general.

Question 3): What do you personally gain from writing these articles?

- I am not here trying to promote a company, book, or website. There’s nothing wrong with that. That’s just not what I’m about. I’m here for the “average Joe”.

- When I decided to write these articles, I based it on the notion I am filling a “special niche” per se. Using skills that have been built up over my professional career, my articles usually provide unique information that most writers either a) don’t have the technical expertise to provide or b) don’t bother providing due to the time it takes to compile such data. As such, I believe the S.A. community benefits from my articles. I solely do this b/c it’s a passion of mine and I like helping readers have accurate, reliable data that is not readily available. Yes, I understand this may seem “hard to believe” in this day and age.

Question 4): How come you do not write about more stocks?

- To give readers the level of detail that I provide in my articles, I amass large amounts of data every quarter (or even weekly). As a direct result, a large amount of time is consumed by obtaining / analyzing this data.

- If I expanded the stocks I research, it would most likely take away the quality of other articles I currently am writing about. Again, this gets back to the “quality vs. quantity” metric.

- There is a fairly large range of stocks / investment vehicles I cannot write about / provide an opinion on due to various conflicts of interests (regarding my professional career). This is a topic I take VERY seriously.
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Disclosure: I am/we are long AI, AIC, AIW, ANH, ARR, CHMI, CHMI.PA, GPMT, IVR, MITT, NRZ, NYMTN, TWO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I currently have no position in AGNC, MORL, MORT, NLY, NYMT, ORC, or REM.

Colorado Wealth Management currently has a position in AGNCN, AIC, ANH, ARR-B, CHMI, CMO-E, IVR-C, MFA-B, and MITT, and TWO-D.

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