EX-99.1 2 wmcq4fy16ex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
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WESTERN ASSET MORTGAGE CAPITAL CORPORATION
ANNOUNCES FOURTH QUARTER AND FULL YEAR 2016 RESULTS
 
Conference Call and Webcast Scheduled for Tomorrow, Tuesday, March 7, 2017 at
11:00 a.m. Eastern Time/8:00 a.m. Pacific Time
 
Pasadena, CA, March 6, 2017 – Western Asset Mortgage Capital Corporation (the “Company” or "WMC") (NYSE: WMC) today reported its results for the fourth quarter and the year ended December 31, 2016.
 
FOURTH QUARTER 2016 HIGHLIGHTS

▪
$0.31 per share common dividend declared.
▪
GAAP net loss of $38.3 million, or $0.92 per basic and diluted share.
▪
Core earnings plus drop income of $22.1 million, or $0.52 per basic and diluted share.1,2  
▪
2.74% annualized net interest spread on our investment portfolio.1,4 
▪
Constant prepayment rate (CPR) on the Company’s Agency RMBS portfolio of 11.9% for the quarter.
▪
$10.27 per share net book value as of December 31, 2016, net of fourth quarter common dividend.
▪
Economic return on book value was (7.8)%1,3 for the quarter.
▪
5.0x leverage as of December 31, 2016.
 
FULL YEAR 2016 HIGHLIGHTS

▪
$1.38 per share common dividend declared.
▪
GAAP net loss of $25.0 million, or $0.61 per basic and diluted share.
▪
Core earnings plus drop income of $59.1 million, or $1.41 per basic and diluted share.1,2
▪
2.06% annualized net interest spread on our investment portfolio.1,4 
▪
Economic return on book value was (4.6)%1,3 for the year.


                                                                                                                                                                                                                                                                                             
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 statement of operations, but is not included in core earnings. Drop income was approximately $4.3 million and $9.5 million for the three months and the year ended December 31, 2016, respectively.
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, total return swap and the cost of interest rate swaps.


1



MANAGEMENT COMMENTARY
 
"2016 was another challenging year for the fixed income markets, generating high interest rate volatility and fluctuating asset values against a backdrop of ever changing investor sentiment, and the fourth quarter proved to be no exception. However, I am pleased to report that we generated solid core earnings both in the fourth quarter and for the full year, more than covering our dividend in both instances,” said Jennifer Murphy, Chief Executive Officer of the Company. “We remained focused on our long-term goal of generating a strong total return for our shareholders through attractive dividends derived from sustainable core earnings and appreciation in the value of our portfolio. Our fourth quarter dividend of $0.31 per share and $1.38 for the year reflects our commitment to those goals. While we experienced a decline in our book value in the fourth quarter we continue to reposition our portfolio for greater stability.”

Anup Agarwal, Chief Investment Officer of the Company, commented, "The unexpected results of the presidential election in November 2016, triggered a repricing in the financial markets as investors became more optimistic that U.S. economic growth will accelerate, based on anticipated stimulative fiscal policy comprised of tax cuts, infrastructure spending and de-regulation. This optimism led to a risk-on investor sentiment and exerted upward pressure on interest rates and had a negative impact on Agency RMBS pricing. For the quarter, we generated core earnings plus drop income of $0.52, a significant increase of 49% over the third quarter. However, the increasing interest rates and volatility contributed to the overall decline in our book value for the fourth quarter. Subsequent to year-end and through February our book value has improved, as interest rates have stabilized and credit spreads have tightened against an ongoing favorable outlook for residential and commercial real estate markets.”

Mr. Agarwal concluded, "We believe our portfolio is well positioned to generate attractive risk-adjusted returns for our shareholders. Agency and Non-Agency CMBS, Whole-Loans (residential and commercial), CMBS and GSE CRT investments continue to look particularly appealing on a risk-adjusted basis. We will continue to remain nimble in our capital allocation, in order to capture total return opportunities within our broad investable universe in the fixed-income and mortgage markets.”


























2

FOURTH QUARTER 2016 RESULTS
 
The below table reflects a summary of our operating results:
 
 
 
For the Three Months Ended
GAAP Results
 
December 31, 2016
 
September 30, 2016
 
 
 
 
 
Net Interest Income
 
$
26,725

 
$
21,469

Other Income (Loss):
 
 

 
 

Realized gain (loss) on sale of investments, net
 
(17,023
)
 
1,439

Other than temporary impairment
 
(10,155
)
 
(4,978
)
Unrealized gain (loss), net
 
(64,678
)
 
15,292

Gain (loss) on derivative instruments, net
 
32,479

 
6,121

Other, net
 
338

 
(60
)
Other Income (loss)
 
(59,039
)
 
17,814

Total Expenses
 
5,065

 
4,762

Income (loss) before income taxes
 
(37,379
)
 
34,521

Income tax provision (benefit)
 
917

 
2,239

Net income (loss)
 
$
(38,296
)
 
$
32,282

 
 
 
 
 
Net income (loss) per Common Share – Basic/Diluted
 
$
(0.92
)
 
$
0.77

Non-GAAP Results
 
 

 
 

Core earnings plus drop income(1)
 
$
22,051

 
$
14,838

Core earnings plus drop income per Common Share – Basic/Diluted
 
$
0.52

 
$
0.35

Weighted average yield(2)
 
4.80
%
 
4.28
%
Effective cost of funds(3)
 
2.06
%
 
2.43
%
Annualized net interest spread(2)(3)
 
2.74
%
 
1.85
%
Annualized CPR on Agency RMBS
 
11.9
%
 
11.4
%
 
(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, foreign currency swaps and total return 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.

PORTFOLIO COMPOSITION
 
As of December 31, 2016, the Company owned an aggregate investment portfolio equaling $2.8 billion in market value. The following table sets forth additional information regarding the Company’s portfolio as of December 31, 2016:
 

3

Investment Portfolio
(dollars in thousands)
 
Coupon
 
Principal
Balance
 
Amortized
Cost
 
Fair Value
Agency
 
 
 
 
 
 
 
 
30-year fixed rate
 
3.0%
 
$
94,971

 
$
95,587

 
$
94,454

 
 
3.5%
 
80,018

 
84,555

 
82,937

 
 
4.0%
 
337,106

 
365,916

 
357,357

 
 
4.5%
 
313,477

 
336,565

 
341,176

 
 
5.0%
 
48,640

 
54,633

 
54,289

 
 
5.5%
 
1,959

 
2,247

 
2,180

 
 
6.0%
 
2,428

 
2,704

 
2,814

20-year fixed rate
 
3.5%
 
115,659

 
121,753

 
120,379

 
 
4.0%
 
355,316

 
374,963

 
378,091

Agency RMBS IOs and IIOs(1)
 
3.1%
 
 N/A

 
33,767

 
36,293

Agency CMBS
 
2.6%
 
377,286

 
361,903

 
363,664

Agency CMBS IOs and IIOs(2)
 
1.1%
 
 N/A

 
8,800

 
7,960

Subtotal Agency
 
3.3%
 
1,726,860

 
1,843,393

 
1,841,594

Non-Agency
 
 
 
 

 
 

 
 

Non-Agency RMBS
 
4.5%
 
340,759

 
232,066

 
241,041

Non-Agency RMBS IOs and IIOs(3)
 
5.5%
 
 N/A

 
57,911

 
67,201

Non-Agency CMBS
 
5.0%
 
473,024

 
385,801

 
358,919

Subtotal Non-Agency
 
5.0%
 
813,783

 
675,778

 
667,161

Residential Whole-Loans
 
4.8%
 
187,765

 
188,537

 
192,136

Securitized Commercial Loan(5)
 
9.0%
 
25,000

 
25,000

 
24,225

Other Securities(4)
 
8.2%
 
44,838

 
68,085

 
67,762

Total Portfolio
 
4.0%
 
$
2,798,246

 
$
2,800,793

 
$
2,792,878

 
(1)  Includes $15.0 million of amortized cost and $16.5 million of fair value for Agency RMBS IOs and IIOs accounted for as derivatives for GAAP.
(2)  Includes $8.6 million of amortized cost an $7.7 million of fair value for Agency CMBS IOs and IIOs accounted for as derivatives for GAAP.
(3)  Includes $2.2 million of amortized cost and $3.1 million of fair value for Non-Agency RMBS IOs and IIOs accounted for as derivatives for GAAP.
(4)  Other securities includes residual interests in asset-backed securities which have no principal balance and an amortized cost of approximately $23.1 million.
(5)  The $25.0 million securitized commercial loan is from a consolidated variable interest entity in which the Company owns a $14.0 million first loss position in a
CMBS Securitized Trust.

PORTFOLIO FINANCING AND HEDGING
 
Financing
 
At December 31, 2016, the Company financed its portfolio with $2.2 billion of borrowings under master repurchase agreements with 20 of its 27 approved counterparties, bearing fixed interest rates with maturities of six months or less. The following table sets forth additional information regarding the Company’s portfolio financing as of December 31, 2016 (dollars in thousands):
 
Repurchase Agreements
 
Balance
 
Weighted
Average
Interest Rate
(end of
period)
 
Weighted
Average
Remaining
Maturity
(days)
Agency RMBS
 
$
1,427,674

 
0.96
%
 
38
Agency CMBS
 
56,365

 
1.07
%
 
46
Non-Agency RMBS
 
218,712

 
2.53
%
 
28
Non-Agency CMBS
 
255,656

 
2.55
%
 
30
Whole-Loans and securitized commercial loan
 
161,181

 
2.91
%
 
9
Other Securities
 
36,056

 
2.32
%
 
17
Total
 
$
2,155,644

 
1.48
%
 
34

4

 
Hedging
 
The Company has entered into $3.0 billion notional value of pay-fixed interest rate swaps, excluding forward starting swaps of $1.7 billion (approximately 4.5 months forward), which have variable maturities between October 2, 2017 and February 12, 2044, and $2.7 billion notional value of pay-variable interest rate swaps, which have variable maturities between February 5, 2020 and February 5, 2045.
 
The following tables summarize the average pay rate and average maturity for the Company’s interest rate swaps as of December 31, 2016:
  
Fixed Pay Rate Swap Transactions
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
Remaining Term to Maturity
 
Notional Value

 
Average
Fixed Pay
Rate
 
Average Floating Receive Rate
 
Average
Maturity
(Years)
1 year or less
 
$
105,900

 
0.8
%
 
0.8
%
 
0.8
Greater than 1 year and less than 3 years
 
993,000

 
1.2
%
 
0.9
%
 
1.4
Greater than 3 years and less than 5 years
 
1,861,700

 
1.9
%
 
0.9
%
 
3.9
Greater than 5 years
 
1,701,600

 
3.1
%
 
0.9
%
 
10.5
Total
 
$
4,662,200

 
2.1
%
 
0.9
%
 
5.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable Pay Rate Swap Transactions
 
 
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
Remaining Term to Maturity
 
Notional Value

 
Average
Variable
Pay Rate
 
Average Fixed Receive Rate
 
Average
Maturity
(Years)
Greater than 3 years and less than 5 years
 
$
1,811,400

 
0.9
%
 
1.4
%
 
3.7
Greater than 5 years
 
871,000

 
0.9
%
 
2.2
%
 
12.3
Total 
 
$
2,682,400

 
0.9
%
 
1.7
%
 
6.5

The Company also utilizes U.S. Treasury futures to mitigate exposure to changes in interest rates. As of December 31, 2016, the Company had a net short position U.S. Treasury futures with a notional value of $119.4 million and a fair value in a liability position of $2.4 million.

DIVIDEND
 
On December 22, 2016, 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 $14.06 per share in a combination of cash and stock.
 
CONFERENCE CALL
 
The Company will host a conference call with a live webcast tomorrow, March 7th, at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to discuss financial results for the fourth quarter and year ended December 31, 2016.
 
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

5

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/10100227 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 tomorrow.
 
A telephone replay will be available through March 21, 2017 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10100227. 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 assets consisting of Agency RMBS, Non-Agency RMBS, CMBS, ABS, Residential and Commercial Whole-Loans and other financial assets. 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’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, 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, 2016 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.
 

6

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.
 
###
 
Investor Relations Contact:
Media Contact:
Larry Clark
Tricia Ross
Financial Profiles, Inc.
Financial Profiles, Inc.
(310) 622-8223
(310) 622-8226
lclark@finprofiles.com
tross@finprofiles.com
 
-Financial Tables to Follow-


































7

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands—except share and per share data)
 
 
 
December 31, 2016
 
December 31, 2015
Assets:
 
 

 
 

Cash and cash equivalents
 
$
46,172

 
$
24,711

Mortgage-backed securities and other securities, at fair value ($2,261,430 and $2,777,717 pledged as collateral, at fair value, respectively)
 
2,576,517

 
2,851,127

Residential Whole-Loans, at fair value ($192,136 and $218,538 pledged as collateral, at fair value, respectively)
 
192,136

 
218,538

Securitized commercial loan, at fair value
 
24,225

 
25,000

Investment related receivable
 
33,600

 
572

Accrued interest receivable
 
18,812

 
22,621

Due from counterparties
 
243,585

 
249,563

Derivative assets, at fair value
 
20,571

 
21,915

Other assets
 
398

 
382

Total Assets (1)
 
$
3,156,016

 
$
3,414,429

Liabilities and Stockholders’ Equity:
 
 

 
 

Liabilities:
 
 

 
 

Borrowings under repurchase agreements, net
 
$
2,155,644

 
$
2,585,667

Securitized debt, at fair value
 
10,659

 
11,000

Accrued interest payable
 
16,041

 
20,431

Investment related payables
 
341,458

 
66,146

Due to counterparties
 
740

 
9,950

Derivative liability, at fair value
 
182,158

 
180,177

Accounts payable and accrued expenses
 
3,255

 
2,078

Payable to affiliate
 
2,584

 
3,019

Dividend payable
 
12,995

 
24,313

Total Liabilities (2)
 
2,725,534

 
2,902,781

Commitments and contingencies
 
 

 
 

Stockholders’ Equity:
 
 

 
 

Common stock: $0.01 par value, 500,000,000 shares authorized, 41,919,801 shares issued and outstanding, respectively
 
419

 
419

Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding
 
—

 
—

Additional paid-in capital
 
765,042

 
763,283

Retained earnings (accumulated deficit)
 
(334,979
)
 
(252,054
)
Total Stockholders’ Equity
 
430,482

 
511,648

Total Liabilities and Stockholders’ Equity
 
$
3,156,016

 
$
3,414,429

 


8

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets (Continued)
(in thousands—except share and per share data)
 
 
 
December 31, 2016
 
December 31, 2015
(1) Assets of consolidated VIEs included in the total assets above:
 
 

 
 

Residential Whole-Loans, at fair value ($192,136 and $218,538 pledged as collateral, at fair value, respectively)
 
$
192,136

 
$
218,538

Securitized commercial loan, at fair value
 
24,225

 
25,000

Investment related receivable
 
1,241

 
—

Accrued interest receivable
 
1,622

 
1,836

Total assets of consolidated VIEs
 
$
219,224

 
$
245,374

(2) Liabilities of consolidated VIEs included in the total liabilities above:
 
 
 
 
Securitized debt, at fair value
 
$
10,659

 
$
11,000

Accrued interest payable
 
85

 
85

Accounts payable and accrued expenses
 
2

 
2

Total liabilities of consolidated VIEs
 
$
10,746

 
$
11,087

 



9

Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands—except share and per share data)
 
 
 
Three Months Ended(1)
 
The Year Ended
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2016
Net Interest Income
 
 
 
 
 
 
 
 
 
 

Interest income
 
$
35,764

 
$
29,154

 
$
29,220

 
$
29,618

 
$
123,756

Interest expense
 
9,039

 
7,685

 
7,727

 
7,979

 
32,430

Net Interest Income
 
26,725

 
21,469

 
21,493

 
21,639

 
91,326

Other Income (Loss)
 
 
 
 
 
 
 
 
 
 

Realized gain (loss) on sale of investments, net
 
(17,023
)
 
1,439

 
(352
)
 
(6,055
)
 
(21,991
)
Other than temporary impairment
 
(10,155
)
 
(4,978
)
 
(6,356
)
 
(10,797
)
 
(32,286
)
Unrealized gain (loss), net
 
(64,678
)
 
15,292

 
21,510

 
10,769

 
(17,107
)
Gain (loss) on derivative instruments, net
 
32,479

 
6,121

 
(14,165
)
 
(45,170
)
 
(20,735
)
Other, net
 
338

 
(60
)
 
234

 
(332
)
 
180

Other Income (Loss)
 
(59,039
)
 
17,814

 
871

 
(51,585
)
 
(91,939
)
Expenses
 
 
 
 
 
 
 
 
 
 

Management fee to affiliate
 
2,503

 
2,604

 
2,588

 
2,753

 
10,448

Other operating expenses
 
236

 
188

 
183

 
438

 
1,045

General and administrative expenses
 
 
 
 
 
 
 
 
 
 
Compensation expense
 
768

 
868

 
649

 
737

 
3,022

Professional fees
 
867

 
723

 
1,222

 
2,002

 
4,814

Other general and administrative expenses
 
691

 
379

 
419

 
428

 
1,917

Total general and administrative expenses
 
2,326

 
1,970

 
2,290

 
3,167

 
9,753

Total Expenses
 
5,065

 
4,762

 
5,061

 
6,358

 
21,246

Income (loss) before income taxes
 
(37,379
)
 
34,521

 
17,303

 
(36,304
)
 
(21,859
)
Income tax provision (benefit)
 
917

 
2,239

 
—

 
—

 
3,156

Net income (loss)
 
$
(38,296
)
 
$
32,282

 
$
17,303

 
$
(36,304
)
 
$
(25,015
)
Net income (loss) per Common Share – Basic
 
$
(0.92
)
 
$
0.77

 
$
0.41

 
$
(0.88
)
 
$
(0.61
)
Net income (loss) per Common Share – Diluted
 
$
(0.92
)
 
$
0.77

 
$
0.41

 
$
(0.88
)
 
$
(0.61
)
Dividends Declared per Share of Common Stock
 
$
0.31

 
$
0.31

 
$
0.31

 
$
0.45

 
$
1.38


(1) Consolidated Statement of Operations for the each of the three months ended March 31, 2016, June 30, 2016 September 30, 2016 and December 31, 2016 are unaudited.

10


Reconciliation of GAAP Net Income to Non-GAAP Core Earnings
(Unaudited)
(in thousands—except share and per share data)
 
The table below reconciles Net Income (Loss) to Core Earnings for each of the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016 and the year ended December 31, 2016:
 
 
Three Months Ended
 
The Year Ended
(dollars in thousands)
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2016
Net Income (loss) – GAAP
 
$
(38,296
)
 
$
32,282

 
$
17,303

 
$
(36,304
)
 
$
(25,015
)
Provision for income tax
 
917

 
2,239

 
—

 
—

 
3,156

Net income (loss) before provision for income tax
 
(37,379
)
 
34,521

 
17,303

 
(36,304
)
 
(21,859
)
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 

 
 

 
 

 
 

 
 
Investments:
 
 

 
 

 
 

 
 

 
 
Unrealized (gain) loss on investments and securitized debt
 
64,678

 
(15,292
)
 
(21,510
)
 
(10,769
)
 
17,107

Other than temporary impairment
 
10,155

 
4,978

 
6,356

 
10,797

 
32,286

Realized (gain) loss on sale of investments
 
17,023

 
(1,439
)
 
352

 
6,055

 
21,991

Realized (gain) loss on foreign currency transactions
 
(167
)
 
149

 
638

 
(521
)
 
99

Unrealized (gain) loss on foreign currency transactions
 
20

 
195

 
(651
)
 
1,095

 
659

 
 
 
 
 
 
 
 
 
 
 
Derivative Instruments:
 
 

 
 

 
 

 
 

 
 
Net realized (gain) loss on derivatives
 
3,962

 
14,242

 
995

 
(26,716
)
 
(7,517
)
Unrealized (gain) loss on derivatives
 
(40,938
)
 
(26,054
)
 
7,572

 
64,555

 
5,135

 
 
 
 
 
 
 
 
 
 
 
Non-cash stock-based compensation expense
 
348

 
433

 
346

 
572

 
1,699

Total adjustments
 
55,081

 
(22,788
)
 
(5,902
)
 
45,068

 
71,459

Core Earnings – Non-GAAP
 
$
17,702

 
$
11,733

 
$
11,401

 
$
8,764

 
$
49,600

Basic Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP
 
$
0.42

 
$
0.28

 
$
0.27

 
$
0.21

 
$
1.18

Diluted Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP
 
$
0.42

 
$
0.28

 
$
0.27

 
$
0.21

 
$
1.18

Basic weighted average common shares and participating securities
 
41,971,600

 
41,970,108

 
41,956,898

 
41,950,076

 
41,962,318

Diluted weighted average common shares and participating securities
 
41,971,600

 
41,970,108

 
41,956,898

 
41,950,076

 
41,962,318



11

Reconciliation of Interest Income and Effective Cost of Funds
(Unaudited, in thousands)
 
The following table reconciles total interest income to interest income including interest income on Agency and Non-Agency Interest-Only Strips classified as derivatives (Non-GAAP financial measure) for the each of the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016 and the year ended December 31, 2016:
 
 
 
Three Months Ended
 
The Year Ended
(dollars in thousands)
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 
December 31, 2016
Coupon interest income
 
$
37,658

 
$
34,944

 
$
36,171

 
$
38,399

 
$
147,172

Premium amortization, discount accretion and amortization of basis, net
 
(1,894
)
 
(5,790
)
 
(6,951
)
 
(8,781
)
 
(23,416
)
Interest income
 
$
35,764

 
$
29,154

 
$
29,220

 
$
29,618

 
$
123,756

Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1):
 
 

 
 

 
 

 
 

 
 
Coupon interest income
 
3,035

 
3,503

 
3,464

 
4,146

 
14,148

Amortization of basis (Non-GAAP Financial Measure)
 
(2,508
)
 
(2,827
)
 
(2,720
)
 
(3,383
)
 
(11,438
)
Contractual interest income, net on Foreign currency swaps(1)
 
15

 
61

 
94

 
113

 
283

Contractual interest income, net on Total return swaps(1)
 
285

 
308

 
307

 
221

 
1,121

Subtotal
 
827

 
1,045

 
1,145

 
1,097

 
4,114

Total interest income, including interest income on Agency and Non-Agency Interest-Only Strips, classified as derivatives and other derivative instruments - Non-GAAP Financial Measure
 
$
36,591

 
$
30,199

 
$
30,365

 
$
30,715

 
$
127,870

 
(1)                Reported in gain (loss) on derivative instruments in the Consolidated Statement of Operations.
 
The following tables reconcile the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for each of the three months ended March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016:
 
 
 
Three Months Ended
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
March 31, 2016
 (dollars in thousands)
 
Interest
 
Effective
Borrowing
Costs
 
Interest
 
Effective
Borrowing
Costs
 
Interest
 
Effective
Borrowing
Costs
 
Interest
 
Effective
Borrowing
Costs
Interest expense
 
$
9,039

 
1.30
%
 
$
7,685

 
1.29
%
 
$
7,727

 
1.30
%
 
$
7,979

 
1.33
%
Net interest paid - interest rate swaps
 
5,324

 
0.76
%
 
6,736

 
1.14
%
 
6,743

 
1.14
%
 
8,428

 
1.40
%
Effective Borrowing Costs
 
$
14,363

 
2.06
%
 
$
14,421

 
2.43
%
 
$
14,470

 
2.44
%
 
$
16,407

 
2.73
%
Weighted average repurchase borrowings
 
$
2,775,889

 
 

 
$
2,365,695

 
 

 
$
2,387,337

 
 

 
$
2,414,531

 
 















12

The following tables reconcile the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for years ended December 31, 2016 and 2015:
 
 
The Year Ended
 
 
 
December 31, 2016
 
December 31, 2015
 
 (dollars in thousands)
 
Interest
 
Effective
Borrowing
Costs
 
Interest
 
Effective
Borrowing
Costs
 
Interest expense
 
$
32,430

 
1.30
%
 
$
27,605

 
0.82
%
 
Net interest paid - interest rate swaps
 
27,231

 
1.10
%
 
19,116

 
0.57
%
 
Effective Borrowing Costs
 
$
59,661

 
2.40
%
 
$
46,721

 
1.39
%
 
Weighted average repurchase borrowings
 
$
2,486,490

 
 

 
$
3,357,445

 
 

 


13