Market Overview

Western Asset Mortgage Capital Corporation Announces Second Quarter 2019 Results

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PASADENA, Calif., Aug. 6, 2019 /PRNewswire/ -- Western Asset Mortgage Capital Corporation (the "Company" or "WMC") (NYSE:WMC) today reported its results for the second quarter ended June 30, 2019.

SECOND QUARTER 2019 FINANCIAL HIGHLIGHTS

  • June 30, 2019 book value per share of $10.51, net of second quarter common dividend of $0.31 per share declared on June 20, 2019.
  • GAAP net income of $10.6 million, or $0.21 per basic and diluted share.
  • Core earnings of $15.8 million, or $0.31 per basic and diluted share.1
  • Economic return on book value was 1.1%1,2 for the quarter.
  • 2.14% annualized net interest margin on our investment portfolio. 1,3,4
  • 5.6x leverage excluding non-recourse debt as of June 30, 2019 (8.5x leverage including non-recourse debt).

OTHER SECOND QUARTER 2019 HIGHLIGHTS

  • $49.3 million of common equity raised during the quarter, net of offering costs
  • Acquired $1.2 billion of investments, consisting of:
    • $584.0 million in Agency RMBS
    • $500.9 million in Agency CMBS
    • $50.0 million in a Commercial Loan
    • $67.3 million in Non-Agency CMBS
    • $19.8 million in GSE Risk Transfer Securities
  • Completed a securitization of $945.5 million of our Residential Whole Loan investments involving the issuance of $919 million in mortgage-backed notes.

 

1

Non – GAAP measure.

2

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.

3

Includes interest-only securities accounted for as derivatives and the cost of interest rate swaps.

4

Excludes the consolidation of VIE trusts required under GAAP.

MANAGEMENT COMMENTARY

"I am pleased to report that we generated core earnings of $0.31 per share during the second quarter, 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 economic return on book value was 1.1% for the quarter and 6.5% for the first six months of 2019, in a market environment that continues to experience interest rate volatility. We paid a second quarter dividend of $0.31 per share, which has remained consistent for thirteen consecutive quarters.

"We are pleased to have completed two significant capital markets transactions during the quarter. In May, we completed a $49 million equity offering which allowed us to further invest in our target assets, and 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 will benefit shareholders over time.

"In June, we completed a securitization of a portion of our residential whole loans involving the issuance of $919 million in mortgage-backed notes. This transaction represents the Company's first securitization and enables us to finance our target assets with longer-term fixed rate financing at attractive levels. Our successful execution of this securitization reflects the Company's ability to leverage the platform of our manager, Western Asset, which we view as a strategic advantage for the Company and its shareholders," Ms. Murphy concluded.

Harris Trifon, Chief Investment Officer of the Company, commented, "Our strong core earnings and positive performance for the second quarter and year-to-date were driven by contributions across our diverse holdings in a number of subsectors of the mortgage market and reflect our efforts to increase our exposure to credit sensitive investments while also complementing these holdings with exposure to Agency MBS. We invested the proceeds from our May equity offering relatively quickly, acquiring more of our target assets. During the quarter, we acquired $1.2 billion of target assets, including $1.1 billion of Agency MBS and $137 million of credit sensitive investments, consisting primarily of Commercial Whole Loans, Non-Agency CMBS and GSE Risk Transfer Securities, all areas where we continue to see opportunities to achieve attractive risk-adjusted returns."

"Our current expectations are for continued, yet moderate, U.S. economic growth along with subdued inflation expectations and a more accommodative Federal Reserve monetary policy. We believe that credit spread sectors will continue to perform well for the remainder of 2019 and we will continue to focus on where we see the best relative value within our target universe. We remain constructive on both residential and commercial real estate. The U.S. housing market remains healthy, with continued underlying demand driven by ongoing job growth, high consumer confidence and increased household formations. Commercial real estate fundamentals continue to be positive, driven by an ongoing economic expansion. As such, we believe that our strategy of holding a diverse investment portfolio, with our focus on risk management, positions us well to continue generating strong core earnings while preserving our book value, with the overriding goal of providing our shareholders favorable risk-adjusted returns," concluded Mr. Trifon.

OPERATING RESULTS

The below table reflects a summary of our operating results:



For the Three Months Ended

GAAP Results


June 30, 2019


March 31, 2019



(in thousands-except share and per share data)






Net Interest Income


$

15,860



$

15,633


Other Income (Loss):





Realized gain (loss) on sale of investments, net


(8)



(5,105)


Other than temporary impairment


(3,295)



(1,232)


Unrealized gain (loss), net


74,614



50,781


Gain (loss) on derivative instruments, net


(71,530)



(27,148)


Other, net


532



236


Other Income (loss)


313



17,532


Total Expenses


5,081



5,277


Income (loss) before income taxes


11,092



27,888


Income tax provision (benefit)


478



12


Net income (loss)


$

10,614



$

27,876







Net income (loss) per Common Share – Basic/Diluted


$

0.21



$

0.58


Non-GAAP Results





Core earnings (1)


$

15,758



$

15,492


Core earnings per Common Share – Basic/Diluted


$

0.31

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