UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 7, 2013
Western Asset Mortgage Capital Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OF INCORPORATION)
001-35543 |
|
27-0298092 |
(COMMISSION FILE NUMBER) |
|
(IRS EMPLOYER ID. NUMBER) |
385 East Colorado Boulevard |
|
|
Pasadena, California |
|
91101 |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |
|
(ZIP CODE) |
(626) 844-9400
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On November 7, 2013, Western Asset Mortgage Capital Corporation (the Company) issued a press release announcing its financial results for the fiscal quarter ended September 30, 2013. The text of the press release is furnished as exhibit 99.1 to this Form 8-K.
Item 7.01 Regulation FD Disclosure
Also on November 7, the Company held a conference call in which it discussed its financial results. The presentation from such call is furnished herewith as Exhibit 99.2 to this Form 8-K.
Pursuant to the rules and regulations of the Securities and Exchange Commission, Exhibits 99.1 and 99.2 and the information set forth therein and herein are being furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), nor shall they be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
Exhibit No. |
Description |
99.1 |
Press Release, dated November 7, 2013 issued by Western Asset Mortgage Capital Corporation |
99.2 |
Presentation, dated November 7, 2013 by Western Asset Mortgage Capital Corporation |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
WESTERN ASSET MORTGAGE CAPITAL CORPORATION | ||
|
| ||
|
| ||
|
By: |
/s/ W. Stephen Venable, Jr. |
|
|
|
Name: W. Stephen Venable, Jr. | |
|
|
Title: Assistant Secretary |
Date: November 7, 2013
Exhibit 99.1
FOR IMMEDIATE RELEASE
WESTERN ASSET MORTGAGE CAPITAL CORPORATION
ANNOUNCES THIRD QUARTER 2013 RESULTS
Conference Call and Webcast Scheduled for today, Thursday, November 7, 2013 at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time
Pasadena, CA, November 7, 2013 Western Asset Mortgage Capital Corporation (NYSE: WMC) today reported a net income of $7.5 million, or $0.31 per basic and diluted share for the third quarter ended September 30, 2013. Core earnings for the third quarter were $20.1 million, or $0.83 per basic and diluted share1. The Company also reported a net book value of $16.81 per share as of September 30, 2013.
THIRD QUARTER 2013 HIGHLIGHTS
· Generated net income of $7.5 million, or $0.31 per basic and diluted share
o Net income includes $37.5 million of net unrealized gain on MBS and $48.5 million of net realized loss on MBS
· Generated core earnings of $20.1 million, or $0.83 per basic and diluted share1
· Declared a $0.90 per share regular dividend for the quarter
· $16.81 per share net book value as of September 30, 2013
· 3.42% weighted average portfolio yield on Agency and Non-Agency MBS, including IO securities accounted for as derivatives and linked transactions under GAAP1
· 1.14% weighted average effective cost of financing on Agency and Non-Agency MBS, including swaps and linked transactions1
· 2.28% weighted average net interest spread on Agency and Non-Agency MBS, including IO securities accounted for as derivatives and swaps1
· $3.6 billion investment portfolio fair value as of September 30, 2013
· Constant prepayment rate on its Agency RMBS portfolio of 5.3% for the quarter
· 8.1x leverage as of September 30, 2013
o 9.0x leverage when adjusted for net TBA position 1,2
1 Non GAAP measure
2 8.1x leverage calculation does not reflect net To-Be Announced (TBA) mortgage pass-through certificates position. As of September 30, 2013, the net long position in TBAs was $390 million in notional value.
THIRD QUARTER 2013 RESULTS
For the third quarter ended September 30, 2013, the Company earned net income of $7.5 million, or $0.31 per basic and diluted share. Included in the net income was $37.5 million of net unrealized gain on MBS, $48.5 million of net realized loss on MBS (including other loss on mortgage-backed securities of $2.4 million), and $4.4 million of net loss on derivative instruments and linked transactions. During the period, the Company generated core earnings of $20.1 million, or $0.83 per basic and 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; (iv) other loss on RMBS; (v) non-cash stock-based compensation expense; and (vi) one-time events pursuant to changes in GAAP and certain other non-cash charges, if any. Net interest income for the period was $26.4 million.
For the quarter ended September 30, 2013, the Companys weighted average yield on its portfolio was 3.42%, including Agency and Non-Agency MBS, interest from Interest-Only securities accounted for as derivatives and linked transactions that occurred during the quarter. The Companys effective cost of funds on its Agency and Non-Agency MBS financing (including the cost of interest rate swaps and linked transactions) was 1.14%. The annualized net interest spread on its portfolio was 2.28%, including Agency and Non-Agency MBS, interest from Interest-Only securities accounted for as derivatives and linked transactions, and taking into account the cost of the interest rate swaps. This compares with a weighted average yield of 3.14%, an effective cost of funds of 0.96%, and an annualized net interest spread of 2.18% for the quarter ended June 30, 2013.
CONSTANT PREPAYMENT RATES
The actual constant prepayment rate (CPR) for the Companys Agency RMBS portfolio during the third quarter was 5.3% on an annualized basis, as compared to 4.4% for the second quarter of 2013.
During the third quarter of 2013, we saw rather dramatic price swings in the Agency MBS market. In July and August, prices declined on concern that the Federal Reserve would begin tapering its purchases of Agency RMBS earlier than expected and then in mid-September, prices rose as investors reacted to the Federal Reserves announcement that it would not begin tapering its purchases, said Gavin James, Chief Executive Officer of Western Asset Mortgage Capital Corporation. We are pleased to have generated a positive economic return on book value of approximately 1.8% for the quarter.3 We believe that we are well positioned to generate continued positive results through the remainder of the year, based on the current interest rate environment and the subdued nature of the U.S. economic recovery.
3 Economic return for any period is calculated as the change in book value over the period plus dividends paid.
Anup Agarwal, Chief Investment Officer of Western Asset Mortgage Capital Corporation, commented, Since our initial public offering in May 2012 through September 30, 2013, WMC has delivered an economic return of 9.6%, despite challenging conditions for investing in mortgage-backed securities. We believe that our ability to achieve this result over that time frame is a testament to the breadth and depth of Western Assets entire MBS team. While our current portfolio is primarily focused on Agency RMBS, over the quarter we have continued to increase our holdings of Non-Agency RMBS and have also added for the first time a small amount of CMBS, as we believe that these securities offer attractive risk adjusted returns and can serve as a complement to our existing Agency RMBS holdings. Under current market conditions we expect to further expand our investments in these sectors while maintaining the core focus on Agency RMBS.
There can be no assurance that the Company will attain any investment objective or result.
DIVIDEND
On September 19, 2013, the Company declared a regular dividend of $0.90 per share of common stock with respect to the quarter ended September 30, 2013. Since inception WMC has declared and paid total dividends of $106.6 million or $5.10 per share.
PORTFOLIO COMPOSITION
As of September 30, 2013, the Company owned an aggregate securities portfolio equaling $3.6 billion in market value, comprised of $2.3 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), $689.4 million of 20-year fixed-rate Agency RMBS, $265.7 million of Non-Agency RMBS, $8.3 million of Agency and Non-Agency CMBS (commercial mortgage-backed securities), $197.0 million of Agency RMBS interest-only and inverse interest-only strips, $95.4 million market value of Agency and Non-Agency interest-only and inverse interest-only strips accounted for as derivatives, and $11.9 million market value of Agency and Non-Agency CMBS interest-only and inverse interest-only strips.
The following table sets forth additional information regarding the Companys portfolio as of September 30, 2013:
Portfolio
($ in millions)
Agency RMBS |
|
Coupon |
|
Principal |
|
Amortized |
|
Estimated Fair |
|
30-year fixed rate |
|
3.5% |
|
$1,560.7 |
|
$1,679.6 |
|
$1,583.7 |
|
|
|
4.0% |
|
$572.1 |
|
$631.3 |
|
$601.1 |
|
|
|
5.5% |
|
$89.4 |
|
$101.5 |
|
$99.6 |
|
|
|
6.0% |
|
$9.4 |
|
$10.5 |
|
$10.3 |
|
20-year fixed rate |
|
3.0% |
|
$540.2 |
|
$566.8 |
|
$542.2 |
|
|
|
3.5% |
|
$101.8 |
|
$108.5 |
|
$105.9 |
|
|
|
4.0% |
|
$38.7 |
|
$42.9 |
|
$41.2 |
|
Total Agency RMBS |
|
|
|
$2,912.3 |
|
$3,141.1 |
|
$2,984.0 |
|
Non-Agency RMBS |
|
1.1% |
|
$401.7 |
|
$267.2 |
|
$265.7 |
|
Agency & Non-Agency CMBS |
|
1.6% |
|
$12.0 |
|
$8.3 |
|
$8.3 |
|
Agency RMBS IOs and IIOs |
|
4.3% |
|
N/A |
|
$198.0 |
|
$197.0 |
|
Agency and Non-Agency IOs and IIOs accounted for as derivatives |
|
4.8% |
|
N/A |
|
N/A |
|
$95.4 |
|
Agency & Non-Agency CMBS IOs and IIOs |
|
0.7% |
|
N/A |
|
$11.9 |
|
$11.9 |
|
Total Agency and Non-Agency IOs and IIOs |
|
|
|
|
|
$209.9 |
|
$304.3 |
|
Total Portfolio |
|
|
|
|
|
$3,626.5 |
|
$3,562.3 |
|
PORTFOLIO FINANCING
At September 30, 2013, the Company financed its portfolio with approximately $3.3 billion of borrowings under master repurchase agreements with seventeen (17) counterparties, bearing fixed interest rates with maturities between October 2013 and January 2014.
The Company has also entered into approximately $2.7 billion notional amount of pay-fixed receive-LIBOR swaps that have variable maturities between October 2014 and August 2043. As of September 30, 2013 approximately 27% of the notional amount of these positions is forward starting swaps (approximately 6.3 months forward).
The following tables set forth additional information regarding the Companys portfolio financing as of September 30, 2013:
Financing as of September 30, 2013
($ in millions)
Repurchase agreements |
|
Balance |
|
Weighted |
|
Weighted |
|
Agency RMBS |
|
$3,149.1 |
|
0.42% |
|
36 |
|
Non-Agency RMBS |
|
$145.1 |
|
1.73% |
|
23 |
|
Agency and Non-Agency CMBS |
|
$14.7 |
|
1.40% |
|
69 |
|
Total |
|
$3,308.9 |
|
0.48% |
|
36 |
|
The following tables summarize the average fixed pay rate and average maturity for the Companys interest rate swaps as of September 30, 2013:
Swap Transactions
($ in millions)
Remaining Term to |
|
Notional |
|
Average |
|
Average |
|
> 1 year to 3 years |
|
$395.0 |
|
0.4% |
|
1.6 |
|
> 3 year to 5 years |
|
$482.6 |
|
1.3% |
|
4.6 |
|
> 5 years |
|
$1,856.3 |
|
2.3% |
|
11.1 |
|
Total |
|
$2,733.9 |
|
1.9% |
|
8.6 |
|
CONFERENCE CALL
The Company will host a conference call with a live webcast today, November 7, 2013 at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to discuss financial results for the third quarter ended September 30, 2013.
Individuals interested in participating in the conference call may do so by dialing 888.561.1721 from the United States, or 480.629.9725 from outside the United States and referencing conference ID 4648140. Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Companys website at www.westernassetmcc.com.
A telephone replay will be available through November 21, 2013 by dialing 800.406.7325 from the United States, or 303.590.3030 from outside the United States, and entering conference ID 4648140. 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 also invests in residential mortgage-backed securities that are not guaranteed by a U.S. Government agency or sponsored entity and commercial mortgage-backed securities. In the future, it may opportunistically invest in 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 Companys annual report on Form 10-K for the period ended December 31, 2012 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 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.
###
Investor Relations Contact: |
Media Contact: |
Larry Clark |
Tricia Ross |
Financial Profiles, Inc. |
Financial Profiles, Inc. |
(310) 478-2700 x29 |
(916) 939-7285 |
lclark@finprofiles.com |
tross@finprofiles.com |
-Financial Tables to Follow-
Western Asset Mortgage Capital Corporation
Balance Sheets (Unaudited)
(in thousandsexcept share and per share data)
|
|
September 30, 2013 |
|
December | |
Assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
39,369 |
$ |
56,292 |
|
Mortgage-backed securities, at fair value |
|
3,562,352 |
|
5,212,581 |
|
Investment related receivables ($139,126 and $0 pledged as collateral, at fair value, respectively) |
|
147,540 |
|
- |
|
Accrued interest receivable |
|
13,389 |
|
17,361 |
|
Due from counterparties |
|
44,116 |
|
54,142 |
|
Derivative assets, at fair value |
|
61,831 |
|
24,344 |
|
Other assets |
|
534 |
|
244 |
|
Total Assets |
$ |
3,869,131 |
$ |
5,364,964 |
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
Borrowings under repurchase agreements |
$ |
3,308,870 |
$ |
4,794,730 |
|
Accrued interest payable |
|
7,121 |
|
6,561 |
|
Investment related payables |
|
48,512 |
|
- |
|
Due to counterparties |
|
61,598 |
|
- |
|
Derivative liabilities, at fair value |
|
9,102 |
|
4,771 |
|
Cash overdraft payable |
|
- |
|
5,666 |
|
Accounts payable and accrued expenses |
|
1,476 |
|
988 |
|
Underwriting and offering costs payable |
|
8 |
|
75 |
|
Payable to related party |
|
2,032 |
|
1,924 |
|
Dividends payable |
|
21,883 |
|
27,041 |
|
Total Liabilities |
|
3,460,602 |
|
4,841,756 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
Common stock, $0.01 par value, 500,000,000 shares authorized, 24,304,503 and 24,143,944 shares issued and outstanding, respectively |
|
243 |
|
241 |
|
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding |
|
- |
|
- |
|
Additional paid-in capital |
|
506,229 |
|
505,454 |
|
Retained earnings (accumulated deficit) |
|
(97,943) |
|
17,513 |
|
Total Stockholders Equity |
|
408,529 |
|
523,208 |
|
Total Liabilities and Stockholders Equity |
$ |
3,869,131 |
$ |
5,364,964 |
|
Western Asset Mortgage Capital Corporation
Statement of Operations (Unaudited)
(in thousandsexcept share and per share data)
|
|
For the three |
|
For the three |
|
For the nine |
|
For the period |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Interest Income: |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
30,654 |
|
$ |
12,987 |
|
$ |
97,146 |
|
$ |
20,070 |
|
Interest expense |
|
4,273 |
|
1,935 |
|
13,976 |
|
2,660 |
| ||||
Net Interest Income |
|
26,381 |
|
11,052 |
|
83,170 |
|
17,410 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other Income (Loss): |
|
|
|
|
|
|
|
|
| ||||
Interest income on cash balances and other income |
|
11 |
|
2 |
|
56 |
|
2 |
| ||||
Realized gain (loss) on sale of Mortgage-backed securities and other securities, net |
|
(46,142) |
|
6,635 |
|
(63,885) |
|
7,792 |
| ||||
Other loss on Mortgage-backed securities |
|
(2,363) |
|
(1,352) |
|
(8,164) |
|
(1,439) |
| ||||
Unrealized gain (loss) on Mortgage-backed securities and other securities, net |
|
37,528 |
|
26,225 |
|
(173,517) |
|
29,208 |
| ||||
Gain (loss) on linked transactions, net |
|
(547) |
|
- |
|
3,958 |
|
- |
| ||||
Gain (loss) on derivative instruments, net |
|
(3,809) |
|
(12,245) |
|
120,505 |
|
(17,404) |
| ||||
Other Income (Loss), net |
|
(15,322) |
|
19,265 |
|
(121,047) |
|
18,159 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
General and administrative (includes $287, $157, $824 and $211 non-cash stock based compensation, respectively) |
|
1,484 |
|
1,321 |
|
4,762 |
|
1,905 |
| ||||
Management fee related party |
|
2,032 |
|
802 |
|
5,971 |
|
1,209 |
| ||||
Total Operating Expenses |
|
3,516 |
|
2,123 |
|
10,733 |
|
3,114 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) to Common Stock and participating securities |
|
$ |
7,543 |
|
$ |
28,194 |
|
$ |
(48,610) |
|
$ |
32,455 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per Common Share Basic |
|
$ |
0.31 |
|
$ |
2.73 |
|
$ |
(2.04) |
|
$ |
3.14 |
|
Net income (loss) per Common Share - Diluted |
|
$ |
0.31 |
|
$ |
2.72 |
|
$ |
(2.04) |
|
$ |
3.14 |
|
Dividends Declared per Share of Common Stock |
|
$ |
0.90 |
|
$ |
0.85 |
|
$ |
2.75 |
|
$ |
1.23 |
|
Western Asset Mortgage Capital Corporation
Reconciliation of GAAP Net Income to Non-GAAP Core Earnings
(Unaudited)
(in thousandsexcept share and per share data)
The table below summarizes the reconciliation from Net income (loss) to Core Earnings for the three and nine months ended September 30, 2013, for the three months ended September 30, 2012 and for the period from May 15, 2012 (commencement of operations) through September 30, 2012:
(dollars in thousands) |
|
For the three |
|
For the three |
|
For the nine |
|
For the period from |
| ||||
Net income (loss) GAAP |
|
$ |
7,543 |
|
$ |
28,194 |
|
$ |
(48,610) |
|
$ |
32,455 |
|
Adjustments: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
MBS and other securities: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Unrealized (gain) loss on MBS |
|
(37,528) |
|
(26,225) |
|
173,517 |
|
(29,208) |
| ||||
Other loss on mortgage-backed securities |
|
2,363 |
|
1,352 |
|
8,164 |
|
1,439 |
| ||||
Realized (gain) loss on sale of MBS |
|
46,142 |
|
(6,635) |
|
63,885 |
|
(7,792) |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Derivative Instruments: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Realized gain on termination of interest rate swaps |
|
(23,166) |
|
- |
|
(65,305) |
|
(4) |
| ||||
Realized (gain) loss on settlement of TBAs |
|
(1,016) |
|
- |
|
1,547 |
|
- |
| ||||
Realized loss on expiration of option derivatives |
|
- |
|
- |
|
925 |
|
- |
| ||||
Realized gain on sale of swaptions |
|
(22,633) |
|
- |
|
(23,671) |
|
- |
| ||||
Realized (gain) loss on sale of securities underlying linked transactions |
|
699 |
|
- |
|
(3,049) |
|
- |
| ||||
Realized loss on Agency and Non-Agency Interest-Only Strips accounted for as derivatives |
|
- |
|
- |
|
99 |
|
- |
| ||||
Mark-to-market adjustments on interest rate swaps |
|
28,891 |
|
8,075 |
|
(44,169) |
|
13,119 |
| ||||
Mark-to-market adjustments on interest rate swaptions |
|
16,065 |
|
298 |
|
(3,180) |
|
298 |
| ||||
Mark-to-market adjustments on TBAs |
|
(2,361) |
|
- |
|
926 |
|
- |
| ||||
Mark-to-market adjustments on linked transactions |
|
25 |
|
- |
|
71 |
|
- |
| ||||
Mark-to-market adjustments on derivative instruments |
|
4,824 |
|
2,973 |
|
3,539 |
|
3,198 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Non-cash stock-based compensation expense |
|
287 |
|
157 |
|
824 |
|
211 |
| ||||
Total adjustments |
|
12,592 |
|
(20,005) |
|
114,123 |
|
(18,739) |
| ||||
Core Earnings Non-GAAP Financial Measure |
|
$ |
20,135 |
|
$ |
8,189 |
|
$ |
65,513 |
|
$ |
13,716 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP Financial Measure |
|
$ |
0.83 |
|
$ |
0.79 |
|
$ |
2.70 |
|
$ |
1.33 |
|
Diluted Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP Financial Measure |
|
$ |
0.83 |
|
$ |
0.79 |
|
$ |
2.70 |
|
$ |
1.33 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average common shares and participating securities |
|
24,309,390 |
|
10,343,944 |
|
24,274,108 |
|
10,340,860 |
| ||||
Diluted weighted average common shares and participating securities |
|
24,324,794 |
|
10,364,252 |
|
24,288,211 |
|
10,340,860 |
|
Reconciliation of Interest Income
(Unaudited, in thousands)
The following table reconciles total interest income to interest income including interest income on Agency and Non-Agency Interest-Only classified as derivatives and interest income on linked transactions (non-GAAP financial measure) for the three and nine months ended September 30, 2013, for the three months ended September 30, 2012 and for the period from May 15, 2012 (commencement of operations) through September 30, 2012:
(in thousands) |
|
For the three |
|
For the three |
|
For the nine |
|
For the period |
| ||||
Coupon Interest |
|
$ |
42,935 |
|
$ |
20,547 |
|
$ |
140,347 |
|
$ |
29,459 |
|
Premium accretion, discount amortization and amortization of basis, net |
|
(12,281) |
|
(7,560) |
|
(43,201) |
|
(9,389) |
| ||||
Interest Income |
|
$ |
30,654 |
|
$ |
12,987 |
|
$ |
97,146 |
|
$ |
20,070 |
|
|
|
|
|
|
|
|
|
|
| ||||
Contractual Interest income, net of amortization basis on Agency and Non-Agency Interest-Only and Interest Strips, classified as derivatives(1): |
|
|
|
|
|
|
|
|
| ||||
Coupon Interest |
|
$ |
6,993 |
|
$ |
2,619 |
|
$ |
19,968 |
|
$ |
3,572 |
|
Amortization of basis (Non-GAAP Financial Measure) |
|
(4,040) |
|
(1,888) |
|
(12,856) |
|
(2,010) |
| ||||
Contractual Interest income, net of discount amortization on Linked Transactions (2): |
|
|
|
|
|
|
|
|
| ||||
Coupon Interest |
|
49 |
|
|
|
289 |
|
|
| ||||
Discount amortization |
|
160 |
|
|
|
917 |
|
|
| ||||
Subtotal |
|
3,162 |
|
731 |
|
8,318 |
|
1,562 |
| ||||
Total interest income, including interest income on Agency and Non-Agency Interest-Only Strips, classified as derivatives - Non-GAAP Financial Measure |
|
$ |
33,816 |
|
$ |
13,718 |
|
$ |
105,464 |
|
$ |
21,632 |
|
(1) Reported in gain (loss) on derivative instruments in the Statement of Operations.
(2) Reported in gain (loss) on linked transactions in the Statement of Operations.
The following table reconciles the Effective Cost of Funds (non-GAAP financial measure) with interest expense for the three and nine months ended September 30, 2013:
|
|
For the three months ended |
|
For the nine months ended |
| ||||||
(dollars in thousands) |
|
Reconciliation |
|
Cost of |
|
Reconciliation |
|
Cost of |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Interest expense |
|
$ |
4,273 |
|
0.47 % |
|
$ |
13,976 |
|
0.46 % |
|
Interest expense on linked transactions |
|
32 |
|
1.81 % |
|
226 |
|
1.65 % |
| ||
Net interest paid - interest rate swaps |
|
6,158 |
|
0.67 % |
|
15,896 |
|
0.52 % |
| ||
Effective Borrowing Costs - Non-GAAP Financial Measure |
|
$ |
10,463 |
|
1.14 % |
|
$ |
30,098 |
|
0.98 % |
|
Weighted average repurchase borrowings(1) |
|
3,639,335 |
|
|
|
4,097,047 |
|
|
|
(1) Includes average repurchase borrowings under linked transactions.
The following table reconciles the Effective Cost of Funds (non-GAAP financial measure) with interest expense for the three months ended September 30, 2012 and for the period from May 15, 2012 (commencement of operations) through September 30, 2012:
|
|
For the three months ended |
|
For the period from May 15, 2012 |
| ||||||
(dollars in thousands) |
|
Reconciliation |
|
Cost of |
|
Reconciliation |
|
Cost of |
| ||
|
|
|
|
|
|
|
|
|
| ||
Interest expense |
|
$ |
1,935 |
|
0.43 % |
|
$ |
2,660 |
|
0.41 % |
|
Net interest paid - interest rate swaps |
|
1,630 |
|
0.36 % |
|
2,355 |
|
0.36 % |
| ||
Effective Borrowing Costs - Non-GAAP Financial Measure |
|
$ |
3,565 |
|
0.79 % |
|
$ |
5,015 |
|
0.77 % |
|
Weighted average repurchase borrowings |
|
1,787,408 |
|
|
|
1,717,583 |
|
|
|
Exhibit 99.2
Third Quarter 2013 Investor Presentation November 7, 2013 |
Safe Harbor Statement We make forward-looking statements in this presentation that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: our business and investment strategy; our projected operating results; our ability to obtain financing arrangements; financing and advance rates for Agency RMBS and our potential target assets; our expected leverage; general volatility of the securities markets in which we invest and the market price of our common stock; our expected investments; interest rate mismatches between Agency RMBS and our potential target assets and our borrowings used to fund such investments; changes in interest rates and the market value of Agency RMBS and our potential target assets; changes in prepayment rates on Agency RMBS and non-Agency RMBS; effects of hedging instruments on Agency RMBS and our potential target assets; rates of default or decreased recovery rates on Agency RMBS and our potential target assets; the degree to which any hedging strategies may or may not protect us from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; our ability to maintain our qualification as a REIT; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; availability of investment opportunities in mortgage-related, real estate-related and other securities; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition; and market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy. The forward-looking statements in this presentation are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described in our filings with the SEC under the headings "Summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations" and "Business." If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation is not an offer to sell securities nor a solicitation of an offer to buy securities in any jurisdiction where the offer and sale is not permitted. 1 |
Key Highlights Third Quarter Generated net income of $7.5 million, or $0.31 per share Generated core earnings of $20.1 million, or $0.83 per share Regular dividend of $0.90 per share Generated positive economic return on book value of 1.8% Since IPO Generated GAAP net income of $8.7 million Generated core earnings of $102.2 million, or $5.03 per share Generated an annualized economic return on book value of approximately 9.6%, comprised of: $5.10 per share in dividends $3.19 per share decrease in book value 2 Core earnings is a non-GAAP measure defined as net income 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; (iv) other loss on RMBS; (v) non-cash stock-based compensation expense; and (vi) one-time events pursuant to changes in GAAP and certain other non-cash charges. Economic return, for any period, is calculated by taking the sum of (i) the total dividends declared and (ii) the change in net book value during the period and dividing by the beginning book value. Dividend return includes all dividends declared during the period from May 15, 2012, the date of WMCs commencement of initial operations, through September 30, 2013. (1) (2) (1) (3) (1) (2) (3) |
Third Quarter Financial Results GAAP Net Income of $7.5 million, or $0.31 per share Core Net Income of $20.1 million, or $0.83 per share Net Interest Income of $23.4 million, including interest from IO securities, linked transactions and taking into account the full cost of hedging Net interest spread of 2.28%, including IO securities and fully hedged cost of financing 3.42% adjusted gross yield 1.14% fully hedged cost of funds Operating expenses of $3.5 million representing annualized cost of 3.4% on book value $16.81 net book value per share as of September 30, 2013 CPR of 5.3% for the quarter $3.6 billion investment portfolio as of September 30, 2013 $3.3 billion in total borrowings as of September 30, 2013 3 Non-GAAP measures, which include Agency RMBS, non-Agency RMBS (including linked transactions), and interest income on Agency IOs classified as derivatives. Adjusted for the $0.90 dividend declared on September 19, 2013 Second quarter weighted average Constant Prepayment Rate for the companys Agency RMBS portfolio on an annualized basis. (1) (3) (1) (1) (1) (2) (1) |
Ten Months of 2013: Volatile Period for Mortgage Assets 4 Mortgage spreads have increased while Spec Pool Pay-ups have significantly decreased |
Ten Months of 2013: Interest Rate Volatility Has Increased 1 yr. x 10 yr. Swap Volatility Volatility has subsided in the last two months 5 Source: Bloomberg |
Leading Economic Return Amongst Peers May 10, 2012 to September 30, 2013 (not annualized) 6 Since its IPO and through the third quarter of 2013, WMC generated an economic return on book value in excess of the peer group average by approximately1,100 basis points. Book value change and dividend return are adjusted for WMCs third quarter dividend of $0.90 that was declared on September 19, 2013. Dividend return includes all dividends declared during the period from May 15, 2012, the date of WMCs commencement of initial operations, through September 30, 2013. Peer group dividend return includes all dividends declared during the period and adjusting for 50% of the dividends declared during the period ending June 30, 2012. Economic return is calculated by taking the sum of (i) the total dividends declared and (ii) the change in net book value during the period and dividing by the beginning book value. Calculations for the period are not annualized. Peer Group consists of AGNC, ANH, ARR, CMO, CYS, HTS & NLY (1) (2) (3) Book Value Change(1) Dividend Return Economic Retrun(2) |
7 Portfolio Composition as of September 30, 2013 Lower loan balance pools generally consist of loans below $150,000. Other consists of newly issued pools, high spread at origination SATO and low third party origination pools. Agency RMBS Coupon Principal Balance Amortized Cost Estimated Fa ir Value 30 - year fixed rate 3.5% $ 1,560.7 $ 1,679.6 $ 1,583.7 4.0% $ 572.1 $ 631.3 $ 601.1 5.5% $ 89.4 $ 101.5 $ 99.6 6.0% $ 9.4 $10.5 $10.3 20 - year fixed rate 3.0% $540.2 $ 566.8 $ 542.2 3.5% $ 101.8 $ 108.5 $ 105.9 4.0% $ 38.7 $42 .9 $ 41.2 Total Agency RMBS $2,912.3 $ 3,14 1 .1 $ 2,984.0 Non - Agency RMBS 1.1 % $ 401.7 $ 267.2 $ 265.7 Agency & Non - Agency CMBS 1.6% $12.0 $8.3 $8.3 Agency RMBS IOs and IIOs 4.3% N/A $198.0 $197.0 Agency and Non - Agency IOs and IIOs accounted for as derivatives 4.8 % N/A N/A $95.4 Agency & Non - Agency CMBS IOs and IIOs 0.7% N/A $ 11.9 $ 11.9 Total Agency and Non - Agency IOs and IIOs $ 209.9 $ 304.3 Total Portfolio $3,626.5 $3,562.3 Agency Pool Breakdown MHA/HARP high LTV Lower loan balanace Other |
8.1x leverage calculation does not reflect net To-Be Announced (TBA) mortgage pass-through certificates position. As of September 30, 2013, the net long position in TBAs was $390 million in notional value. Adjusted leverage is a Non-GAAP measure. Non-GAAP measures which include Agency and Non-Agency MBS (including the cost of interest rate swaps and linked transactions), and interest income on IOs and IIOs classified as derivatives, and for the quarter ended September 30, 2013. Includes net interest component related to interest rate swaps and reflects interest expense adjusted to include realized loss (the interest expense component) for all interest rate swaps. Estimated impact of liability hedges on the duration of net assets. Leverage Ratio: 8.1x Leverage Ratio adjusted for TBA position of 9.0x Net Duration of Agency RMBS Portfolio: 1.1 years Agency RMBS Weighted Average Loan Age (WALA) of 11.6 months Percentage of funding covered by swaps: 83% Percentage of swaps that are forward starting: 27% Portfolio Gross Yield : 3.42% Hedge Adjusted Cost of Financing : 1.14% Net Interest Spread : 2.28% CPR of 5.3% for Q3 versus Agency REIT Peer Group average of 16.1% Duration Contribution by Maturity Date Key Portfolio Metrics as of September 30, 2013 (3) (2) (2) 8 (1) (4) Total 6-Months 2-Year 5-Year 10-Year 20-Year 30-Year Agency RMBS 5.56 0.09 0.70 1.52 2.11 1.07 0.07 Non-Agency RMBS 0.47 0.00 0.01 0.09 0.20 0.15 0.02 Swaps -4.44 -0.06 -0.14 -0.88 -2.38 -1.05 0.06 Total (ex Non-Agency RMBS) 1.12 0.04 0.56 0.65 -0.27 0.01 0.13 |
Financing Summary Repurchase Agreements ($ in millions as of September 30, 2013) Original Maturity Repo Outstanding % Repo Outstanding $ Interest Rate Remaining Days to Maturity < 30 Days 11.4% $376.5 0.64% 11 >30 Days to < 60 Days 7.3% $241.0 0.76% 14 >60 Days to < 90 Days 7.3% $240.9 0.38% 30 > 90 Days 74.0% $2,450.5 0.44% 41 Total/Wtd Avg 100% $3,308.9 0.48% 36 Master repurchase agreements with 17 counterparties Internal credit review Capacity in excess of our needs |
Hedging Summary Interest Rate Swaps $2.7 billion notional pay fixed swap book as of September 30, 2013 Includes $747 million of forward starting swaps, starting in 6.3 months (1) While we use hedging strategies as part of our overall portfolio management, these strategies are not designed to eliminate all risks in the portfolio. There can be no assurance as to the level or effectiveness of these strategies. Interest Rate Swaps ($ in millions as of September 30, 2013) Maturity Notional Amount Avg. Fixed Pay Rate Avg. Floating Receive Rate Average Maturity (Years) 1 Year to 3 Years $395.0 0.4% 0.25% 1.5 3 Years to 5 Years $482.6 1.3% 0.25% 4.6 5 Years to 10 Years $1,201.7 2.0% 0.23% 8.3 >10 Years $654.6 3.0% 0.53% 16.1 Total Portfolio $2,733.9 1.9% 0.32% 8.6 Other Instruments with Hedging Attributes (1) $304 million of IOs and inverse IOs $266 million of non-Agency RMBS |
Portfolio Dynamics Maintained exposure to 20 year pools due to lower spread duration Shifted towards higher coupon 30 year pools Increased exposure to select Non-Agency securities that we believe are correlated to housing recovery and home price appreciation Added for the first time a small amount of CMBS Continue to target pools with characteristics that lead to lower than expected CPRs Lower loan balance loans High loan-to-value MHA/HARP origination loans Newly issued (low WALA) loans High SATO (Spread at Origination) loans 11 |
Investment Highlights Western Asset is one of the largest fixed income managers with extensive experience in managing RMBS since 1974 Differentiated investment approach to managing prepayment and interest rate risk We believe current net interest spreads and CPR position the Company well to seek its objective of superior risk-adjusted returns Industry leading finance and administrative infrastructure Key strategic relationships provides superior market access 12 |
Contact Information 13 Western Asset Mortgage Capital Corporation c/o Financial Profiles, Inc. 11601 Wilshire Blvd., Suite 1920 Los Angeles, CA 90025 www.westernassetmcc.com Investor Relations Contact: Larry Clark Tel: (310) 478-2700 x29 lclark@finprofiles.com |
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