Western Asset Mortgage Capital Corporation Announces Third Quarter
2012 Results
PASADENA, Calif., Nov. 9, 2012 /PRNewswire/ -- Western Asset
Mortgage Capital Corporation (NYSE: WMC) today reported net income
for the third quarter ended September 30,
2012 of $28.2 million, or
$2.72 per share. The Company
also reported a net book value of $21.76 per share as of September 30, 20121.
THIRD QUARTER 2012 HIGHLIGHTS
- Successful follow-on offering, raising over $300 million in equity
- Declared an $0.85 per share
dividend for the quarter
- $21.76 net book value as of
September 30, 20121
- Generated net income of $28.2
million, or $2.72 per
share
- Generated core earnings of $9.3
million, or $0.89 per
share2
- 2.79% weighted average portfolio yield, including IO
securities2
- 0.79% weighted average effective cost of financing, including
swaps2
- 2.00% weighted average net interest spread, including IO
securities and swaps2
- Constant prepayment rate of 4.1% for the quarter
- 8.5x leverage as of September 30,
20123
COMMON STOCK OFFERING
On September 28, 2012, the Company
announced that it had entered into a binding agreement with a group
of underwriters to sell an incremental 12.0 million shares of the
Company's common stock. The agreement provided the
underwriters with the right to purchase an additional 1.8 million
shares during the succeeding thirty (30) days. The shares
were offered to the market at a price of $22.20 per share and the underwriters exercised
their option to purchase the incremental 1.8 million shares.
Net proceeds to the Company were approximately $301.0 million. The settlement date for the stock
offering was October 3,
2012.
THIRD QUARTER 2012 RESULTS
For the third quarter ended September 30,
2012, the Company earned net income of $2.72 per diluted share. During the period, the
Company generated core earnings of $9.3
million, or $0.89 per diluted
share. Core earnings represents a non-GAAP financial measure and is
defined as net income (loss) excluding: (i) net realized gain
(loss) on investments and derivative contracts; (ii) net unrealized
gain (loss) on investments; (iii) loss resulting from
mark-to-market adjustments on derivative contracts; and (iv)
non-cash stock-based compensation expense. Net interest income for
the period was $12.8 million. The
Company sold approximately $658
million of Agency RMBS and other securities during the third
quarter, realizing net gains of approximately $6.5 million.
For the third quarter ended September 30,
2012, the Company's weighted average yield on its portfolio
was 2.79%, including interest from Agency IO securities and its
effective cost of funds (including the cost of interest rate swaps)
was 0.79%. The annualized net interest spread was 2.00%, including
interest from Agency IO securities and taking into account the cost
of the interest rate swaps.
CONSTANT PREPAYMENT RATES
The actual constant prepayment rate ("CPR") for the Company's
portfolio during the third quarter was 4.1% on an annualized basis,
as compared to 5.7% for the month of June. The CPR for the
Company's portfolio for the month of September was 2.8%.
"We are pleased with our financial results as our portfolio was
well positioned in advance of the Fed's announcement of a third
round of quantitative easing. We generated strong core earnings and
a 10% increase in book value in addition to our $0.85 dividend," said Gavin James, Chief Executive Officer of Western
Asset Mortgage Capital Corporation. "We also successfully completed
a follow-on stock offering at the end of the quarter, raising over
$300 million and more than doubling
our capital base. We took less than a week to fully deploy that
capital, which is a testament to Western Asset's strong and
resourceful Agency RMBS platform."
Stephen Fulton, Chief Investment
Officer of Western Asset Mortgage Capital Corporation, commented,
"We remain optimistic about the opportunity to invest at attractive
net spreads in spite of the impact that QE3 has had on the Agency
RMBS market. Following the announcement of QE3, we have seen
reduced volatility in the Agency RMBS market. The lower
volatility allows for a modest increase in the leverage in our
portfolio, in order to achieve our targeted level of
value-at-risk. As always, a critical component to successful
portfolio management is security selection, and our focus continues
to be on collateral that we believe will experience lower relative
prepayment speeds. In the month of September our CPR was only
2.8%, which gives us increasing confidence in our strategy."
DIVIDEND
The Company declared a dividend of $0.85 per share of common stock with respect to
the quarter ended September 30,
2012. Using the closing price of $22.20 on September 28,
2012, the third quarter dividend equates to an annualized
dividend yield of 15.3%.
PORTFOLIO COMPOSITION
As of September 30, 2012, the
Company owned an aggregate securities portfolio equaling
$4.61 billion in market
value4, comprised of $3.91
billion of 30-year fixed-rate Agency RMBS (residential
mortgage-backed securities for which the principal and interest
payments are guaranteed by a U.S. Government agency or sponsored
entity), $518.2 million of 20-year
fixed-rate Agency RMBS, $76.9 million
of fixed-rate collateralized mortgage obligations and $111.1 million market value of Agency
interest-only and inverse interest-only strips.
The following table sets forth additional information regarding
the Company's portfolio as of September 30,
2012:
Portfolio
|
|
|
|
|
|
|
|
|
($ in
millions)
|
|
|
|
|
|
|
|
|
Description
|
|
Coupon
|
|
Principal
Balance
|
|
Amortized
Cost
|
|
Estimated
Fair Value (4)
|
30-year
fixed rate
|
|
3.0%
|
|
$268.4
|
|
$279.2
|
|
$283.5
|
|
|
|
3.5%
|
|
$2,263.3
|
|
$2,428.2
|
|
$2,447.6
|
|
|
|
4.0%
|
|
$989.7
|
|
$1,094.8
|
|
$1,098.0
|
|
|
|
5.5%
|
|
$70.3
|
|
$78.9
|
|
$78.5
|
20-year
fixed rate
|
|
3.0%
|
|
$224.3
|
|
$238.8
|
|
$239.2
|
|
|
|
3.5%
|
|
$182.7
|
|
$193.5
|
|
$196.7
|
|
|
|
4.0%
|
|
$74.6
|
|
$82.3
|
|
$82.3
|
Total
Specified Pools
|
|
|
|
$4,073.2
|
|
$4,395.8
|
|
$4,425.9
|
CMO
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
6.5%
|
|
$66.0
|
|
$76.7
|
|
$76.9
|
|
IO/IIO
|
|
4.4%
|
|
N/A
|
|
$81.2
|
|
$77.2
|
|
Agency
interest-only strips, accounted for as derivatives
|
|
4.0%
|
|
N/A
|
|
|
|
$33.9
|
Total
CMO
|
|
|
|
$66.0
|
|
$157.3
|
|
$188.0
|
Total
Portfolio
|
|
|
|
|
|
$4,553.7
|
|
$4,613.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PORTFOLIO FINANCING
At September 30, 2012, the Company
financed its portfolio with $1.92
billion of borrowings under master repurchase agreements
with eleven (11) counterparties, bearing fixed interest rates with
maturities between October 2012 and
December 2012. Subsequent to the quarter end, the Company
settled on $2.67 billion of
securities that were purchased in anticipation of the follow-on
stock offering that closed on October 3,
2012. The Company financed those purchases with incremental
borrowings under master repurchase agreements in the amount of
approximately $2.5 billion.
The Company has also entered into approximately $2.26 billion notional amount of pay-fixed
receive-LIBOR swaps that have variable maturities between
May 2014 and June 2032. As of
September 30, 2012 approximately 26%
of the notional amount of these positions are forward starting
swaps (approximately ten months forward). The total swap position
takes into account the financing that was put in place subsequent
to quarter end as a result of the securities purchased in
conjunction with the Company's follow-on offering.
The following tables set forth additional information regarding
the Company's portfolio financing as of September 30, 2012, exclusive of the securities
purchased in conjunction with the Company's follow-on offering:
Financing as of September 30, 2012
|
|
|
|
|
|
|
($ in
millions)
|
|
|
|
|
|
|
Repurchase
agreements
|
Balance
|
|
Weighted
Average
Interest Rate (end of period)
|
|
Weighted
Average
Remaining Maturity (days)
|
Total
|
|
|
$1,923.5
|
|
0.44%
|
|
53
|
|
|
|
|
|
|
|
|
The following table summarizes the average fixed pay rate and
average maturity for the Company's interest rate swaps as of
September 30, 2012:
Swap
Transactions
|
|
|
|
|
|
($ in
millions)
|
|
|
|
|
|
|
Remaining
Term to Maturity
|
|
Notional
Amount
|
|
Average
Fixed Pay Rate
|
|
Average
Maturity (Years)
|
> 1
year to 3 years
|
|
$542.0
|
|
0.6%
|
|
2.2
|
> 3
year to 5 years
|
|
$260.1
|
|
0.9%
|
|
3.9
|
> 5
years
|
|
|
$1,461,4
|
|
1.6%
|
|
9.5
|
Total
Portfolio
|
|
$2,263.5
|
|
1.3%
|
|
7.1
|
|
|
|
|
|
|
|
|
CONFERENCE CALL
The Company will host a conference call with a live webcast
today at 11:00 a.m. Eastern
Time/8:00 a.m. Pacific Time,
to discuss financial results for the third quarter ended
September 30, 2012.
Individuals interested in participating in the conference call
may do so by dialing 877.941.8609 from the United States, or 480.629.9692 from
outside the United States and
referencing conference ID 4572259. 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.
A telephone replay will be available through November 28, 2012 by dialing 800.406.7325 from
the United States, or 303.590.3030
from outside the United States,
and entering conference ID 4572259. A webcast replay will be
available for 90 days.
ABOUT WESTERN ASSET MORTGAGE CAPITAL CORPORATION
Western Asset Mortgage Capital Corporation is a REIT that
invests primarily in Agency RMBS, which are residential
mortgage-backed securities for which the principal and interest
payments are guaranteed by a U.S. Government agency (such as GNMA)
or a U.S. Government-sponsored entity (such as FNMA or
FHLMC). The Company may opportunistically supplement its
portfolio by investing in its potential target assets, which
include residential mortgage-backed securities that are not
guaranteed by a U.S. Government agency or sponsored entity,
commercial mortgage-backed securities and other asset-backed
securities. The Company is externally managed and advised by
Western Asset Management Company, an investment advisor registered
with the SEC and a wholly-owned subsidiary of Legg Mason, Inc.
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 quarterly report on Form 10-Q for the period ended
June 30, 2012 filed with the
Securities and Exchange Commission ("SEC") and the Company's
registration statement on Form S-11 for the Company's follow-on
common stock offering, as filed with and declared effective by the
SEC on September 28, 2012. 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 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.
1 The net book value per share is based on shares
outstanding inclusive of the shares to be issued in conjunction
with the Company's stock subscription and reflects the $0.85 dividend declared on September 20, 2012.
2 Non-GAAP measures.
3 Reflects total borrowings under repurchase
agreements as of September 30, 2012
and assumes that the $2.67 billion of
securities awaiting settlement that were purchased in conjunction
with the Company's follow-on stock offering were funded with
repurchase agreements at the Company's average advance rate.
4 Includes unsettled purchases with an estimated fair
value of $2,667.3 million at
September 30, 2012
-Financial Tables to Follow-
Western
Asset Mortgage Capital Corporation
Balance
Sheet (Unaudited)
(in
thousands—except share and per share data)
|
|
|
|
|
|
September
30, 2012
|
Assets:
|
|
|
Cash and cash equivalents
|
$
|
19,459
|
Residential mortgage-backed securities, at fair value
($2,032,285 pledged as collateral, at fair value)
|
|
4,613,796
|
Investment related receivables
|
|
182,741
|
Accrued interest receivable
|
|
9,330
|
Stock subscription receivable
|
|
306,360
|
Due from counterparties
|
|
24,780
|
Derivative assets, at fair value
|
|
3,729
|
Other assets
|
|
405
|
Total Assets
|
$
|
5,160,600
|
|
|
|
Liabilities and Stockholders' Equity:
|
|
|
Liabilities:
|
|
|
Borrowings under repurchase agreements
|
$
|
1,923,517
|
Investment related payables
|
|
2,669,070
|
Accrued interest payable
|
|
4,033
|
Due to counterparties
|
|
7,035
|
Derivative liability, at fair value
|
|
15,916
|
Accounts payable and accrued expenses
|
|
845
|
Underwriting and offering costs payable
|
|
5,323
|
Payable to related party
|
|
810
|
Dividend payable
|
|
8,792
|
Total Liabilities
|
|
4,635,341
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
Common stock, $0.01 par value, 500,000,000 shares
authorized, 10,343,944 shares issued and outstanding
|
|
103
|
Common stock subscribed, 13,800,000 shares to be
issued at $22.20 per share, net of underwriting and offering costs
of $5,401
|
|
300,959
|
Preferred stock, $0.01 par value, 100,000,000 shares
authorized and no shares outstanding
|
|
-
|
Additional paid-in capital
|
|
204,465
|
Retained earnings
|
|
19,732
|
Total Stockholders' Equity
|
|
525,259
|
Total Liabilities and Stockholders' Equity
|
$
|
5,160,600
|
Western
Asset Mortgage Capital Corporation
Statement of Operations (Unaudited)
(in
thousands—except share and per share data)
|
|
|
|
|
For the
Three Months Ended September 30, 2012
|
|
|
|
|
Net
Interest Income:
|
|
|
Interest income
|
$
14,688
|
|
Interest expense
|
1,935
|
|
Net
Interest Income
|
12,753
|
|
|
|
|
Other
Income (Loss):
|
|
|
Interest income on cash balances
|
2
|
|
Realized gain on sale of Residential mortgage-backed
securities and other securities, net
|
6,454
|
|
Other loss on Residential mortgage-backed
securities
|
(5,545)
|
|
Unrealized gain on Residential mortgage-backed
securities and other securities, net
|
28,329
|
|
Loss on derivative instruments (includes $11,668
mark-to-market adjustments on derivative instruments),
net
|
(11,676)
|
|
Other
Income (Loss), net
|
17,564
|
|
|
|
|
Operating
Expenses:
|
|
|
General and administrative (includes $157 non-cash
stock based compensation)
|
1,321
|
|
Management fee – related party
|
802
|
|
Total Operating Expenses
|
2,123
|
|
|
|
|
Net income
available to Common Stock and participating securities
|
$
28,194
|
|
|
|
|
Earnings
per Common Share – Basic
|
$
2.73
|
|
Earnings
per Common Share - Diluted
|
$
2.72
|
|
|
|
|
Basic
weighted average number of common shares outstanding
|
10,343,944
|
|
Diluted
weighted average number of common shares outstanding
|
10,364,252
|
|
|
|
|
Dividends
Declared per Share of Common Stock
|
$
0.85
|
|
Western
Asset Mortgage Capital Corporation
Reconciliation of GAAP Net Income to Non-GAAP Core
Earnings
(Unaudited)
(in
thousands—except share and per share data)
|
|
|
|
|
Three
months ended September 30, 2012
|
|
|
|
|
|
|
|
Net Income
– GAAP
|
$
|
28,194
|
|
Adjustments:
|
|
|
Non-cash
stock-based compensation expense
|
157
|
|
Unrealized
gain on RMBS
|
(28,329)
|
|
Unrealized
loss on interest rate swaps and swaptions
|
8,373
|
|
Mark-to-market adjustments on Agency Interest-Only
Strips – accounted for as derivatives
|
1,786
|
|
Other loss
on Residential mortgage-backed securities
|
5,545
|
|
Realized
gain on sale of RMBS
|
(6,454)
|
|
Total
adjustments
|
(18,922)
|
|
Core
Earnings – Non-GAAP Financial Measure
|
$
|
9,272
|
|
|
|
|
Basic Core
Earnings per Share of Common Stock and Participating Securities -
Non-GAAP Financial Measure
|
$
|
0.90
|
|
Diluted
Core Earnings per Share of Common Stock and Participating
Securities - Non-GAAP Financial Measure
|
$
|
0.89
|
|
|
|
|
|
|
|
Basic
weighted average common shares and participating
securities
|
10,343,944
|
|
Diluted
weighted average common shares and participating
securities
|
10,364,252
|
|
|
|
|
Reconciliation of Interest Income
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
For the
Three Months Ended September 30, 2012
|
|
|
Coupon
Interest
|
$
|
21,544
|
|
|
Premium
Amortization
|
|
(6,856)
|
|
|
Interest
Income
|
|
14,688
|
|
|
Contractual Interest Income, net of amortization of
premiums or discounts, net, on Agency Interest-Only Strips,
classified as derivatives(1):
|
|
|
|
|
Coupon
Interest
|
|
1,622
|
|
|
Premium
(Discount) Amortization
|
|
(1,509)
|
|
|
Subtotal
|
|
113
|
|
|
Total
Interest Income, including Interest Income on Agency Interest-Only
Strips, classified as derivatives - Non-GAAP Financial
Measure
|
$
|
14,801
|
|
|
(1) Reported in Loss on derivative instruments in the Statement
of Operations.
SOURCE Western Asset Mortgage Capital Corporation