PASADENA, Calif., Nov. 7, 2018 /PRNewswire/ -- Western Asset
Mortgage Capital Corporation (the "Company" or "WMC") (NYSE: WMC)
today reported its results for the third quarter ended
September 30, 2018.
THIRD QUARTER 2018 FINANCIAL HIGHLIGHTS
- September 30, 2018 book value per
share of $11.13, net of third quarter
common dividend of $0.31 per share
declared on September 17, 2018.
- GAAP net income of $20.9 million,
or $0.50 per basic and diluted
share.
- Core earnings plus drop income of $13.8
million, or $0.33 per basic
and diluted share.1,2
- Economic return on book value was 3.1%1,3 for the
quarter.
- 2.06% annualized net interest margin on our investment
portfolio. 1,4,5
- 6.7x leverage excluding securitized debt as of September 30, 2018 (8.8x leverage with
securitized debt).
OTHER THIRD QUARTER 2018 HIGHLIGHTS
- $67.8 million of common equity
raised during the quarter, net of offering cost
- Acquired $579.8 million of credit
sensitive assets, consisting of,
-
- $375.3 million in Residential
Whole Loans
- $81.4 million in Residential
Bridge Loans
- $94.3 million in Commercial
Loans
- $28.8 million in Non-Agency
CMBS
|
1
|
Non – GAAP
measure.
|
|
2
|
Drop income is income
derived from the use of 'to-be-announced' forward contract ("TBA")
dollar roll transactions which is a component of our gain (loss) on
derivative instruments on our consolidated statements of
operations, but is not included in core earnings. Drop income was
$1.1 million or $0.03 per share for the three months ended
September 30, 2018.
|
|
3
|
Economic return is
calculated by taking the sum of: (i) the total dividends
declared; and (ii) the change in book value during the period
and dividing by the beginning book value.
|
|
4
|
Includes
interest-only securities accounted for as derivatives and the cost
of interest rate swaps.
|
|
5
|
Excludes the
consolidation of VIE trusts required under GAAP.
|
MANAGEMENT COMMENTARY
"I am pleased to report that we delivered another solid
performance in the third quarter, generating core earnings plus
drop income of $0.33 per share, as we
continue to realize the benefits of our diversified portfolio and
differentiated investment strategy," said Jennifer Murphy, Chief Executive Officer of the
Company. "Our primary focus continues to be on generating
consistent and sustainable core earnings that will support an
attractive dividend, while improving the stability of the company's
book value. Our economic return on book value was 3.1%, an
improvement from last quarter and in a market environment that has
seen an increase in interest rate volatility. Our dividend has
remained consistent at $0.31 per
share for ten consecutive quarters and our book value has been
generally stable or rising over that period.
"The equity offering we completed in September allowed us to
further invest in our target assets, which we believe will enhance
the overall earnings potential of the portfolio. The offering also
supports our long term goal of growing the company to achieve
better scale, which we believe benefits shareholders in a number of
ways, including spreading fixed costs over a larger equity base and
increasing liquidity," Ms. Murphy added.
Anup Agarwal, Chief Investment
Officer of the Company, commented, "Our strong core earnings for
the quarter are a reflection of our ongoing shift into credit
sensitive investments and shifting away from Agency RMBS, which
tends to be more interest rate sensitive. We invested the proceeds
from our September equity offering relatively quickly, acquiring
more of our target assets. During the quarter we acquired nearly
$580 million of credit sensitive
investments. These purchases occurred across a number of
sub-sectors of the mortgage market, but particularly in Residential
Whole and Bridge Loans and Commercial Loans, where we continue to
see attractive opportunities. This is consistent with our long-term
goal of holding a diversified portfolio of investments that offer
what we believe to be the best risk-adjusted returns over our
investment horizon.
"Our current expectations are for ongoing economic growth in the
U.S. with the potential for modestly higher inflation. Residential
and commercial real estate markets across the country remain
healthy, based on continued strong employment and high levels of
consumer confidence. Against this backdrop, we believe that our
strategy of investing across sub-sectors of the mortgage market,
particularly in credit-sensitive investments, continues to be
appropriate, and in our opinion, positions us well to continue to
generate attractive risk-adjusted total economic returns for our
shareholders," Mr. Agarwal concluded.
OPERATING RESULTS
The below table reflects a summary of our operating results:
|
For the Three
Months Ended
|
|
GAAP
Results
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
|
|
|
|
|
|
Net Interest
Income
|
$
|
15,944
|
|
|
$
|
19,020
|
|
|
$
|
19,030
|
|
|
Other Income
(Loss):
|
|
|
|
|
|
|
Realized gain (loss)
on sale of investments, net
|
(24,229)
|
|
|
(5,608)
|
|
|
575
|
|
|
Other than temporary
impairment
|
(2,533)
|
|
|
(2,974)
|
|
|
(2,916)
|
|
|
Unrealized gain
(loss), net
|
13,128
|
|
|
(31,693)
|
|
|
(68,961)
|
|
|
Gain (loss) on
derivative instruments, net
|
24,625
|
|
|
28,490
|
|
|
79,582
|
|
|
Other, net
|
(2)
|
|
|
(145)
|
|
|
47
|
|
|
Other Income
(loss)
|
10,989
|
|
|
(11,930)
|
|
|
8,327
|
|
|
Total
Expenses
|
5,845
|
|
|
5,601
|
|
|
5,315
|
|
|
Income (loss) before
income taxes
|
21,088
|
|
|
1,489
|
|
|
22,042
|
|
|
Income tax provision
(benefit)
|
206
|
|
|
36
|
|
|
313
|
|
|
Net income
(loss)
|
$
|
20,882
|
|
|
$
|
1,453
|
|
|
$
|
21,729
|
|
|
|
|
|
|
|
|
Net income (loss) per
Common Share – Basic/Diluted
|
$
|
0.50
|
|
|
$
|
0.03
|
|
|
$
|
0.52
|
|
|
Non-GAAP
Results
|
|
|
|
|
|
|
Core earnings plus
drop income(1)
|
$
|
13,837
|
|
|
$
|
15,155
|
|
|
$
|
14,149
|
|
|
Core earnings plus
drop income per Common Share – Basic/Diluted
|
$
|
0.33
|
|
|
$
|
0.36
|
|
|
$
|
0.34
|
|
|
Weighted average
yield(2)(4)
|
4.53
|
%
|
|
4.36
|
%
|
|
4.14
|
%
|
|
Effective cost of
funds(3)(4)
|
2.78
|
%
|
|
2.58
|
%
|
|
2.44
|
%
|
|
Annualized net
interest margin(2)(3)(4)
|
2.06
|
%
|
|
2.05
|
%
|
|
1.94
|
%
|
|
Annualized CPR on
Agency RMBS
|
10.4
|
%
|
|
10.4
|
%
|
|
11.0
|
%
|
|
|
|
(1)
|
For a reconciliation
of GAAP Income to Core earnings, please refer to the Reconciliation
of Core Earnings at the end of this press release.
|
|
(2)
|
Includes
interest-only securities accounted for as derivatives and foreign
currency swaps.
|
|
(3)
|
Includes the net
amount paid, including accrued amounts for interest rate swaps and
premium amortization for MAC interest rate swaps during the
periods.
|
|
(4)
|
Excludes the
consolidation of VIE trusts required under GAAP.
|
Portfolio Composition
As of September 30, 2018, the Company owned an aggregate
investment portfolio with a fair market value totaling $5.2 billion. The following tables sets forth
additional information regarding the Company's investment portfolio
as of September 30, 2018:
Portfolio Characteristics
Agency Portfolio
The following table summarizes certain characteristics of our
Agency portfolio by investment category as of September 30,
2018 (dollars in thousands):
|
Principal Balance
|
|
Amortized Cost
|
|
Fair Value
|
|
Net Weighted
Average Coupon
|
|
Agency
RMBS
|
$
|
389,756
|
|
|
$
|
402,889
|
|
|
$
|
385,008
|
|
|
3.6
|
%
|
|
Agency RMBS
Interest-Only Strips
|
N/A
|
|
|
12,377
|
|
|
12,203
|
|
|
2.3
|
%
|
|
Agency RMBS
Interest-Only Strips, accounted for as derivatives
|
N/A
|
|
|
N/A
|
|
|
8,006
|
|
|
2.8
|
%
|
|
Total Agency
RMBS
|
389,756
|
|
|
415,266
|
|
|
405,217
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
Agency
CMBS
|
2,124,942
|
|
|
2,129,912
|
|
|
2,066,075
|
|
|
3.2
|
%
|
|
Agency CMBS
Interest-Only Strips, accounted for as derivatives
|
N/A
|
|
|
N/A
|
|
|
4,241
|
|
|
0.4
|
%
|
|
Total Agency
CMBS
|
2,124,942
|
|
|
2,129,912
|
|
|
2,070,316
|
|
|
3.0
|
%
|
|
Total
|
$
|
2,514,698
|
|
|
$
|
2,545,178
|
|
|
$
|
2,475,533
|
|
|
3.0
|
%
|
Credit Sensitive Portfolio
The following table summarizes certain characteristics of our
credit sensitive portfolio by investment category as of
September 30, 2018 (dollars in thousands):
|
Principal Balance
|
|
Amortized Cost
|
|
Fair
Value
|
|
Weighted
Average Coupon(1)
|
|
Non-Agency
RMBS
|
$
|
113,606
|
|
|
$
|
79,589
|
|
|
$
|
83,350
|
|
|
4.4
|
%
|
|
Non-Agency RMBS IOs
and IIOs
|
N/A
|
|
|
15,677
|
|
|
15,513
|
|
|
0.5
|
%
|
|
Non-Agency
CMBS
|
322,255
|
|
|
268,265
|
|
|
266,847
|
|
|
5.9
|
%
|
|
Residential Whole
Loans
|
674,763
|
|
|
682,856
|
|
|
684,463
|
|
|
4.9
|
%
|
|
Residential Bridge
Loans
|
249,179
|
|
|
250,161
|
|
|
249,226
|
|
|
9.1
|
%
|
|
Securitized
Commercial Loans(1)
|
1,178,839
|
|
|
1,179,866
|
|
|
1,191,048
|
|
|
5.4
|
%
|
|
Commercial
Loans
|
144,787
|
|
|
144,110
|
|
|
143,951
|
|
|
7.3
|
%
|
|
Other
Securities
|
71,420
|
|
|
82,349
|
|
|
92,528
|
|
|
9.0
|
%
|
|
$
|
2,754,849
|
|
|
$
|
2,702,873
|
|
|
$
|
2,726,926
|
|
|
4.5
|
%
|
|
|
1) In March 2018, the
Company acquired a $67.8 million Non-Agency CMBS security
which resulted in the consolidation of a variable interest entity
and the recording of a $1.4 billion securitized commercial loan and
$1.3 billion of securitized debt. As of September 30, 2018, the
fair value of the securitized loan was $1.2 billion and the
securitized debt was $1.2 billion.
|
PORTFOLIO FINANCING AND HEDGING
Financing Activity
Repurchase Agreements
At September 30, 2018, the Company had $3.5 billion of borrowings under master
repurchase agreements with 16 of its 28 approved counterparties
with maturities of six months or less. The following table sets
forth additional information regarding the Company's portfolio
financing under the master repurchase agreements as of
September 30, 2018 (dollars in thousands):
|
Repurchase
Agreements
|
|
Balance
|
|
Weighted
Average
Interest Rate
(end of period)
|
|
Weighted
Average
Remaining Maturity
(days)
|
|
Agency
RMBS
|
|
$
|
393,486
|
|
|
2.39
|
%
|
|
60
|
|
Agency
CMBS
|
|
1,833,352
|
|
|
2.36
|
%
|
|
62
|
|
Non-Agency
RMBS
|
|
71,117
|
|
|
3.70
|
%
|
|
31
|
|
Non-Agency
CMBS
|
|
212,282
|
|
|
3.79
|
%
|
|
48
|
|
Residential
Whole-Loans
|
|
585,178
|
|
|
3.65
|
%
|
|
35
|
|
Residential Bridge
Loans
|
|
216,917
|
|
|
4.37
|
%
|
|
26
|
|
Securitized
Commercial Loans
|
|
7,599
|
|
|
3.99
|
%
|
|
12
|
|
Commercial
Loans
|
|
87,567
|
|
|
4.33
|
%
|
|
27
|
|
Other
Securities
|
|
61,821
|
|
|
3.86
|
%
|
|
29
|
|
Total
|
|
$
|
3,469,319
|
|
|
2.90
|
%
|
|
52
|
Convertible Senior Unsecured Notes
At September 30, 2018, the Company had $115.0 million aggregate principal amount of
6.75% convertible senior unsecured notes. The notes mature on
October 1, 2022, unless earlier
converted, redeemed or repurchased by the holders pursuant to their
terms, and are not redeemable by the Company except during the
final three months prior to maturity. The initial conversion rate
was 83.1947 shares of common stock per $1,000 principal amount of notes and represented
a conversion price of $12.02 per
share of common stock. The Company believes that this
financing is an attractive source of longer term capital, which was
more cost efficient than issuing straight equity.
Hedging Activity
At September 30, 2018, the Company had $3.2 billion notional value of pay-fixed interest
rate swaps, excluding a forward starting swap of $599.3 million (approximately 2.6 months
forward), which have variable maturities between June 14, 2019 and April
27, 2037.
The following tables summarize the average fixed pay rate,
average floating receive rate and average maturity for the
Company's fixed pay interest rate swaps as of September 30,
2018 (dollars in thousands):
|
Remaining Interest
Rate Swap Term
|
|
Notional
Value
|
|
Average
Fixed
Pay
Rate
|
|
Average
Floating
Receive
Rate
|
|
Average
Maturity
(Years)
|
|
Forward
Starting
|
|
1 year or
less
|
|
$
|
400,000
|
|
|
1.5
|
%
|
|
2.3
|
%
|
|
0.8
|
|
—
|
%
|
|
Greater than 1 year
and less than 3 years
|
|
200,000
|
|
|
1.8
|
%
|
|
2.3
|
%
|
|
1.7
|
|
—
|
%
|
|
Greater than 3 years
and less than 5 years
|
|
1,164,700
|
|
|
2.4
|
%
|
|
2.3
|
%
|
|
4.1
|
|
—
|
%
|
|
Greater than 5
years
|
|
2,064,700
|
|
|
2.7
|
%
|
|
2.3
|
%
|
|
10.2
|
|
29.0
|
%
|
|
Total
|
|
$
|
3,829,400
|
|
|
2.4
|
%
|
|
2.3
|
%
|
|
6.9
|
|
15.6
|
%
|
The following table summarizes the average variable pay rate,
average fixed receive rate and average maturity for the Company's
variable pay interest rate swaps as of September 30, 2018
(dollars in thousands):
|
Remaining Interest
Rate Swap Term
|
|
Notional
Amount
|
|
Average
Variable Pay
Rate
|
|
Average
Fixed
Receive
Rate
|
|
Average
Maturity
(Years)
|
|
Forward
Starting
|
|
Greater than 5
years
|
|
$
|
482,400
|
|
|
2.3
|
%
|
|
2.4
|
%
|
|
8.6
|
|
—
|
%
|
|
Total
|
|
$
|
482,400
|
|
|
2.3
|
%
|
|
2.4
|
%
|
|
8.6
|
|
—
|
%
|
DIVIDEND
On September 17, 2018, the Company declared a regular cash
dividend of $0.31 per share for each
common share. Since its inception in May 2012, the Company has
declared and paid total dividends of $16.23 per share in a combination of cash and
stock.
CONFERENCE CALL
The Company will host a conference call with a live webcast
tomorrow, November 8th, at
11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to
discuss financial results for the third quarter 2018.
Individuals interested in participating in the conference call
may do so by dialing (866) 235-9914 from the United States, or (412) 902-4115 from
outside the United States and
referencing "Western Asset Mortgage Capital Corporation." Those
interested in listening to the conference call live via the
Internet may do so by visiting the Investor Relations section of
the Company's website at www.westernassetmcc.com.
The Company is enabling investors to pre-register for the
earnings conference call so that they can expedite their entry into
the call and avoid the need to wait for a live operator. In order
to pre-register for the call, investors can
visit http://dpregister.com/10125095 and enter in their
contact information. Investors will then be issued a personalized
phone number and pin to dial into the live conference call.
Individuals can pre-register any time prior to the start of the
conference call on November 8,
2018.
A telephone replay will be available through November 22, 2018 by dialing (877) 344-7529 from
the United States, or (412)
317-0088 from outside the United
States, and entering conference ID 10125095. A webcast
replay will be available for 90 days.
ABOUT WESTERN ASSET MORTGAGE CAPITAL CORPORATION
Western Asset Mortgage Capital Corporation is a real estate
investment trust that invests in, acquires and manages a diverse
portfolio of assets consisting of Agency CMBS, Agency RMBS,
Non-Agency RMBS, Non-Agency CMBS, ABS, GSE Risk Transfer
Securities, Residential Whole and Bridge Loans and Commercial
Loans. The Company's investment strategy may change, subject to the
Company's stated investment guidelines, and is based on its manager
Western Asset Management Company LLC's perspective of which mix of
portfolio assets it believes provide the Company with the best
risk-reward opportunities at any given time. The Company is
externally managed and advised by Western Asset Management Company,
LLC, an investment advisor registered with the Securities and
Exchange Commission and a wholly-owned subsidiary of Legg
Mason, Inc. Please visit the Company's website at
www.westernassetmcc.com.
FORWARD-LOOKING STATEMENTS
This press release contains statements that constitute
"forward-looking statements." Operating results are subject
to numerous conditions, many of which are beyond the control of the
Company, including, without limitation, changes in interest rates;
changes in the yield curve; changes in prepayment rates; the
availability and terms of financing; general economic conditions;
market conditions; conditions in the market for mortgage related
investments; legislative and regulatory changes that could
adversely affect the business of the Company; and other factors,
including those set forth in the Risk Factors section of the
Company's annual report on Form 10-K for the period ended
December 31, 2017 filed with the Securities and Exchange
Commission ("SEC"). The Company undertakes no obligation to update
these statements for revisions or changes after the date of this
release, except as required by law.
USE OF NON-GAAP FINANCIAL INFORMATION
In addition to the results presented in accordance with GAAP,
this release includes certain non-GAAP financial information,
including core earnings, core earnings per share, drop income and
drop income per share and certain financial metrics derived from
non-GAAP information, such as weighted average yield, including IO
securities; weighted average effective cost of financing, including
swaps; weighted average net interest spread, including IO
securities and swaps, which constitute non-GAAP financial measures
within the meaning of Regulation G promulgated by the SEC. We
believe that these measures presented in this release, when
considered together with GAAP financial measures, provide
information that is useful to investors in understanding our
borrowing costs and net interest income, as viewed by us. An
analysis of any non-GAAP financial measure should be made in
conjunction with results presented in accordance with GAAP.
-Financial Tables to Follow-
|
Western Asset
Mortgage Capital Corporation and Subsidiaries
|
|
Consolidated
Balance Sheets
|
|
(in
thousands—except share and per share data)
|
|
(Unaudited)
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
Assets:
|
|
|
|
|
Cash and cash
equivalents
|
$
|
12,817
|
|
|
$
|
48,024
|
|
|
Restricted
cash
|
100,138
|
|
|
—
|
|
|
Agency
mortgage-backed securities, at fair value ($2,325,859 and
$2,833,595 pledged as collateral, at fair value,
respectively)
|
2,475,533
|
|
|
2,858,600
|
|
|
Non-Agency
mortgage-backed securities, at fair value ($351,032 and $266,189
pledged as collateral, at fair value, respectively)
|
365,710
|
|
|
378,158
|
|
|
Other securities, at
fair value ($92,391 and $89,823 pledged as collateral, at fair
value, respectively)
|
92,528
|
|
|
122,065
|
|
|
Residential
Whole-Loans, at fair value ($684,463 and $237,423 pledged as
collateral, at fair value, respectively)
|
684,463
|
|
|
237,423
|
|
|
Residential Bridge
Loans ($234,747 and $64,526 at fair value and $249,471 and $106,673
pledged as collateral, respectively)
|
249,471
|
|
|
106,673
|
|
|
Securitized
commercial loan, at fair value
|
1,191,048
|
|
|
24,876
|
|
|
Commercial Loans, at
fair value ($123,677 and $0 pledged as collateral, at fair value,
respectively)
|
143,951
|
|
|
—
|
|
|
Investment related
receivable ($34,559 and $0 pledged as collateral,
respectively)
|
113,341
|
|
|
7,665
|
|
|
Interest
receivable
|
21,869
|
|
|
13,603
|
|
|
Due from
counterparties
|
81,513
|
|
|
86,930
|
|
|
Derivative assets, at
fair value
|
2,700
|
|
|
728
|
|
|
Other
assets
|
2,903
|
|
|
2,161
|
|
|
Total Assets
(1)
|
$
|
5,537,985
|
|
|
$
|
3,886,906
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity:
|
|
|
|
|
Liabilities:
|
|
|
|
|
Repurchase
agreements, net
|
$
|
3,469,319
|
|
|
$
|
3,251,686
|
|
|
Convertible senior
unsecured notes, net
|
109,731
|
|
|
108,743
|
|
|
Securitized debt, at
fair value (includes $313,143 and $10,945 held by affiliates,
respectively)
|
1,119,089
|
|
|
10,945
|
|
|
Interest payable
(includes $891 and $70 on securitized debt held by affiliates,
respectively)
|
10,027
|
|
|
8,322
|
|
|
Investment related
payables
|
169,499
|
|
|
17,217
|
|
|
Due to
counterparties
|
1,068
|
|
|
1,490
|
|
|
Derivative liability,
at fair value
|
2,159
|
|
|
4,346
|
|
|
Accounts payable and
accrued expenses
|
3,513
|
|
|
3,118
|
|
|
Payable to
affiliate
|
2,489
|
|
|
2,041
|
|
|
Dividend
payable
|
14,916
|
|
|
12,960
|
|
|
Other
liabilities
|
100,530
|
|
|
—
|
|
|
Total Liabilities
(2)
|
$
|
5,002,340
|
|
|
$
|
3,420,868
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
Common stock: $0.01
par value, 500,000,000 shares authorized, 48,116,379 and 41,794,079
outstanding, respectively
|
481
|
|
|
419
|
|
|
Preferred stock,
$0.01 par value, 100,000,000 shares authorized and no shares
outstanding
|
—
|
|
|
—
|
|
|
Treasury stock, at
cost, 0 and 125,722 shares held, respectively
|
—
|
|
|
(1,232)
|
|
|
Additional paid-in
capital
|
833,840
|
|
|
768,763
|
|
|
Retained earnings
(accumulated deficit)
|
(298,676)
|
|
|
(301,912)
|
|
|
Total Stockholders'
Equity
|
535,645
|
|
|
466,038
|
|
|
Total Liabilities and
Stockholders' Equity
|
$
|
5,537,985
|
|
|
$
|
3,886,906
|
|
|
Western Asset
Mortgage Capital Corporation and Subsidiaries
|
|
Consolidated
Balance Sheets (Continued)
|
|
(in
thousands—except share and per share data)
|
|
(Unaudited)
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(1) Assets of consolidated VIEs
included in the total assets above:
|
|
|
|
|
Restricted
Cash
|
100,138
|
|
|
—
|
|
|
Residential
Whole-Loans, at fair value ($684,463 and $237,423 pledged as
collateral, at fair value, respectively)
|
684,463
|
|
|
237,423
|
|
|
Residential Bridge
Loans ($234,747 and $64,526 at fair value and $249,471 and $106,673
pledged as collateral, respectively)
|
249,471
|
|
|
106,673
|
|
|
Securitized
commercial loan, at fair value
|
1,191,048
|
|
|
24,876
|
|
|
Commercial Loans, at
fair value ($123,677 and $0 pledged as collateral, at fair value,
respectively)
|
123,677
|
|
|
—
|
|
|
Investment related
receivable
|
33,430
|
|
|
7,665
|
|
|
Interest
receivable
|
12,418
|
|
|
3,358
|
|
|
Other
assets
|
203
|
|
|
—
|
|
|
Total assets of
consolidated VIEs
|
$
|
2,394,848
|
|
|
$
|
379,995
|
|
|
|
|
|
|
(2) Liabilities of consolidated VIEs
included in the total liabilities above:
|
|
|
|
|
Securitized debt, at
fair value (includes $313,143 and $10,945 held by affiliates,
respectively)
|
$
|
1,119,089
|
|
|
$
|
10,945
|
|
|
Interest payable
(includes $891 and $70 on securitized debt held by affiliates,
respectively)
|
2,487
|
|
|
70
|
|
|
Accounts payable and
accrued expenses
|
737
|
|
|
189
|
|
|
Other
liabilities
|
100,531
|
|
|
—
|
|
|
Total liabilities of
consolidated VIEs
|
$
|
1,222,844
|
|
|
$
|
11,204
|
|
|
Western Asset
Mortgage Capital Corporation and Subsidiaries
|
|
Consolidated
Statements of Operations
|
|
(in
thousands—except share and per share data)
|
|
(Unaudited)
|
|
|
Three months
ended
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
Net Interest
Income
|
|
|
|
|
|
|
Interest
income
|
$
|
54,461
|
|
|
$
|
57,154
|
|
|
$
|
39,727
|
|
|
Interest expense
(includes $4,465, $4,719, and $488 on securitized debt held by
affiliates, respectively)
|
38,517
|
|
|
38,134
|
|
|
20,697
|
|
|
Net Interest
Income
|
15,944
|
|
|
19,020
|
|
|
19,030
|
|
|
|
|
|
|
|
|
Other Income
(Loss)
|
|
|
|
|
|
|
Realized gain (loss)
on sale of investments, net
|
(24,229)
|
|
|
(5,608)
|
|
|
575
|
|
|
Other than temporary
impairment
|
(2,533)
|
|
|
(2,974)
|
|
|
(2,916)
|
|
|
Unrealized gain
(loss), net
|
13,128
|
|
|
(31,693)
|
|
|
(68,961)
|
|
|
Gain (loss) on
derivative instruments, net
|
24,625
|
|
|
28,490
|
|
|
79,582
|
|
|
Other, net
|
(2)
|
|
|
(145)
|
|
|
47
|
|
|
Other Income
(Loss)
|
10,989
|
|
|
(11,930)
|
|
|
8,327
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Management fee to
affiliate
|
2,284
|
|
|
2,259
|
|
|
2,180
|
|
|
Other operating
expenses
|
1,609
|
|
|
1,555
|
|
|
969
|
|
|
General and
administrative expenses:
|
|
|
|
|
|
|
Compensation
expense
|
552
|
|
|
572
|
|
|
510
|
|
|
Professional
fees
|
1,065
|
|
|
818
|
|
|
1,295
|
|
|
Other general
and administrative expenses
|
335
|
|
|
397
|
|
|
361
|
|
|
Total general and
administrative expenses
|
1,952
|
|
|
1,787
|
|
|
2,166
|
|
|
Total
Expenses
|
5,845
|
|
|
5,601
|
|
|
5,315
|
|
|
|
|
|
|
|
|
Income before
income taxes
|
21,088
|
|
|
1,489
|
|
|
22,042
|
|
|
Income tax provision
(benefit)
|
206
|
|
|
36
|
|
|
313
|
|
|
Net
income
|
$
|
20,882
|
|
|
$
|
1,453
|
|
|
$
|
21,729
|
|
|
|
|
|
|
|
|
Net income per Common
Share – Basic
|
$
|
0.50
|
|
|
$
|
0.03
|
|
|
$
|
0.52
|
|
|
Net income per Common
Share – Diluted
|
$
|
0.50
|
|
|
$
|
0.03
|
|
|
$
|
0.52
|
|
|
Dividends Declared
per Share of Common Stock
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
|
Reconciliation of GAAP Net Income to Non-GAAP
Core Earnings
(in thousands—except share and per share
data)
(Unaudited)
The table below reconciles Net Income to Core Earnings for the
three months ended September 30, 2018, June 30, 2018 and March
31, 2018:
|
|
Three months
ended
|
|
(dollars in
thousands)
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
Net Income
|
|
$
|
20,882
|
|
|
$
|
1,453
|
|
|
$
|
21,729
|
|
|
Income tax provision
(benefit)
|
|
206
|
|
|
36
|
|
|
313
|
|
|
Income before income
taxes
|
|
21,088
|
|
|
1,489
|
|
|
22,042
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
Unrealized (gain)
loss on investments, securitized debt and other
liabilities
|
|
(13,128)
|
|
|
31,693
|
|
|
68,961
|
|
|
Other than temporary
impairment
|
|
2,533
|
|
|
2,974
|
|
|
2,916
|
|
|
Realized (gain) loss
on sale of investments
|
|
24,229
|
|
|
5,608
|
|
|
(575)
|
|
|
One-time transaction
costs
|
|
310
|
|
|
163
|
|
|
41
|
|
|
|
|
|
|
|
|
|
Derivative
Instruments:
|
|
|
|
|
|
|
|
Net realized (gain)
loss on derivatives
|
|
(29,569)
|
|
|
(22,973)
|
|
|
(79,118)
|
|
|
Unrealized (gain)
loss on derivatives
|
|
7,036
|
|
|
(4,268)
|
|
|
(1,308)
|
|
|
|
|
|
|
|
|
|
Amortization of
discount on convertible senior unsecured notes
|
|
137
|
|
|
138
|
|
|
137
|
|
|
Non-cash stock-based
compensation
|
|
70
|
|
|
50
|
|
|
75
|
|
|
Total
adjustments
|
|
(8,382)
|
|
|
13,385
|
|
|
(8,871)
|
|
|
Core
Earnings
|
|
$
|
12,706
|
|
|
$
|
14,874
|
|
|
$
|
13,171
|
|
|
Basic and Diluted
Core Earnings per Common Share and Participating
Securities
|
|
$
|
0.30
|
|
|
$
|
0.35
|
|
|
$
|
0.32
|
|
|
Basic and Diluted
Core Earnings plus Drop Income per Common Share and Participating
Securities
|
|
$
|
0.33
|
|
|
$
|
0.36
|
|
|
0.34
|
|
|
Basic weighted
average common shares and participating securities
|
|
42,168,806
|
|
|
41,707,291
|
|
|
41,844,798
|
|
|
Diluted weighted
average common shares and participating securities
|
|
42,168,806
|
|
|
41,707,291
|
|
|
41,844,798
|
|
|
|
Reconciliation of Interest Income and
Effective Cost of Funds
(dollars in
thousands)
(Unaudited)
The following table reconciles total interest income to adjusted
interest income which includes interest income on Agency and
Non-Agency Interest-Only Strips classified as derivatives (Non-GAAP
financial measure) for the three months ended September 30,
2018, June 30, 2018 and March 31, 2018:
|
|
Three months
ended
|
|
(dollars in
thousands)
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
Coupon interest
income
|
|
$
|
59,045
|
|
|
$
|
60,043
|
|
|
$
|
40,557
|
|
|
Premium amortization,
discount accretion and amortization of basis, net
|
|
(4,584)
|
|
|
(2,889)
|
|
|
(830)
|
|
|
Interest
income
|
|
54,461
|
|
|
57,154
|
|
|
39,727
|
|
|
Contractual interest
income, net of amortization of basis on Agency and Non-Agency
Interest-Only Strips, classified as
derivatives(1):
|
|
|
|
|
|
|
|
Coupon interest
income
|
|
1,209
|
|
|
1,011
|
|
|
1,422
|
|
|
Amortization of
basis
|
|
(996)
|
|
|
(783)
|
|
|
(1,191)
|
|
|
Subtotal
|
|
213
|
|
|
228
|
|
|
231
|
|
|
Total adjusted
interest income
|
|
$
|
54,674
|
|
|
$
|
57,382
|
|
|
$
|
39,958
|
|
|
|
|
(1)
|
Reported in "Gain
(loss) on derivative instruments, net" in the Consolidated
Statements of Operations.
|
|
|
|
|
The following table reconciles the Effective Cost of Funds
(Non-GAAP financial measure) with interest expense for three months
ended September 30, 2018, June 30,
2018 and March 31, 2018:
|
|
Three months
ended
|
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
(dollars in
thousands)
|
|
Reconciliation
|
|
Cost of
Funds/Effective
Borrowing
Costs
|
|
Reconciliation
|
|
Cost of
Funds/Effective
Borrowing
Costs
|
|
Reconciliation
|
|
Cost of
Funds/Effective
Borrowing
Costs
|
|
Interest
expense
|
|
$
|
38,517
|
|
|
3.50
|
%
|
|
$
|
38,134
|
|
|
3.20
|
%
|
|
$
|
20,697
|
|
|
2.38
|
%
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on
Securitized debt from consolidated VIEs
|
|
(13,975)
|
|
|
(4.85)
|
%
|
|
(14,340)
|
|
|
4.62
|
%
|
|
(1,060)
|
|
|
5.23
|
%
|
|
Net interest
(received) paid - interest rate swaps
|
|
(1,962)
|
|
|
(0.18)
|
%
|
|
(1,044)
|
|
|
(0.09)
|
%
|
|
1,056
|
|
|
0.12
|
%
|
|
Effective Borrowing
Costs
|
|
$
|
22,580
|
|
|
2.78
|
%
|
|
$
|
22,750
|
|
|
2.58
|
%
|
|
$
|
20,693
|
|
|
2.41
|
%
|
|
Weighted average
borrowings
|
|
$
|
3,224,915
|
|
|
|
|
$
|
4,780,990
|
|
|
|
|
$
|
3,526,311
|
|
|
|
View original
content:http://www.prnewswire.com/news-releases/western-asset-mortgage-capital-corporation-announces-third-quarter-2018-results-300746023.html
SOURCE Western Asset Mortgage Capital Corporation