Market Overview

Western Asset Mortgage Capital Corporation Announces Third Quarter 2019 Results

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PASADENA, Calif., Nov. 5, 2019 /PRNewswire/ -- Western Asset Mortgage Capital Corporation (the "Company" or "WMC") (NYSE:WMC) today reported its results for the third quarter ended September 30, 2019.

THIRD QUARTER 2019 FINANCIAL HIGHLIGHTS

  • September 30, 2019 book value per share of $10.60, net of third quarter common dividend of $0.31 per share declared on September 19, 2019.
  • GAAP net income of $19.7 million, or $0.37 per basic and diluted share.
  • Core earnings of $15.0 million, or $0.28 per basic and diluted share.1
  • Economic return on book value was 3.8% for the quarter.1,2
  • 1.69% annualized net interest margin on our investment portfolio. 1,3,4
  • 5.4x leverage excluding non-recourse debt as of September 30, 2019 (8.0x leverage including non-recourse debt).

OTHER THIRD QUARTER 2019 HIGHLIGHTS

  • Issued $40.0 million aggregate principal amount of 6.75% convertible senior unsecured notes.
  • Sold $562.3 of Agency MBS investments.
  • Redeployed the capital to acquire $564.6 million of investments, consisting of:
    • $237.5 million in Agency CMBS
    • $129.7 million in Commercial Loans
    • $80.7 million in Residential Whole Loans
    • $108.7 million in Non-Agency CMBS
    • $7.9 million in GSE Risk Transfer Securities

 

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 very pleased to report that we delivered an economic return on book value of  3.8% for the quarter and 10.3% for the first nine months of 2019, in a market environment that continues to experience interest rate volatility," said Jennifer Murphy, Chief Executive Officer of the Company. "Our solid performance for the quarter and year-to-date is the result of the strength of our diversified portfolio and our differentiated investment strategy. Our third quarter dividend  remained stable at $0.31 per share for the fourteenth quarter in a row, reflecting our commitment to our long-term goal of generating attractive total returns for our shareholders, while also providing for greater book value stability," said Ms. Murphy.

"We are pleased to have issued an additional $40.0 million of our 6.75% convertible senior unsecured notes due 2022 under our existing indenture,  allowing us to further invest in our target assets,  which we believe will enable us to enhance the overall earnings potential of the portfolio. The offering also supports our long term goal of growing the Company to achieve increased scale, which we believe will benefit shareholders over time," Ms. Murphy added.

Harris Trifon, Chief Investment Officer of the Company, commented, "Our positive performance for the third 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 and our August debt offering relatively quickly, acquiring more of our target assets. During the quarter, we acquired  $565 million of target assets, including $238 million of Agency MBS and $327 million of credit sensitive investments, consisting primarily of Residential Whole Loans,  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 an accommodative Federal Reserve monetary policy. We believe that credit spread sectors will continue to perform well in this environment and we will remain focused on our active approach to seeking the best relative value within our target universe. 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 favorable risk-adjusted returns for our shareholders," concluded Mr. Trifon.

OPERATING RESULTS

The below table reflects a summary of our operating results:



For the Three Months Ended

GAAP Results


September 30, 2019


June 30, 2019


March 31, 2019



(in thousands-except share and per share data)








Net Interest Income


$

16,570



$

15,860



$

15,633


Other Income (Loss):







Realized gain (loss) on sale of investments, net


21,399



(8)



(5,105)


Other than temporary impairment


(1,819)



(3,295)



(1,232)


Unrealized gain (loss), net


35,030



74,614



50,781


Gain (loss) on derivative instruments, net


(47,056)



(71,530)



(27,148)


Other, net


918



532



236


Other Income (loss)


8,472



313



17,532


Total Expenses


5,377



5,081



5,277


Income (loss) before income taxes


19,665



11,092



27,888


Income tax provision (benefit)


(55)



478



12


Net income (loss)


$

19,720



$

10,614



$

27,876




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