Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - Western Asset Mortgage Capital Corp | wmc4qfy17ex992.htm |
| 8-K - 8-K - Western Asset Mortgage Capital Corp | wmcq4fy178-k.htm |
Exhibit 99.1
WESTERN ASSET MORTGAGE CAPITAL CORPORATION
ANNOUNCES FOURTH QUARTER AND FULL YEAR 2017 RESULTS
Conference Call and Webcast Scheduled for Tomorrow, Tuesday, March 6, 2018 at
11:00 a.m. Eastern Time/8:00 a.m. Pacific Time
Pasadena, CA, March 5, 2018 – 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, 2017.
Fourth Quarter 2017 Highlights
▪ | December 31, 2017 book value per share of $11.15, net of fourth quarter common dividend of $0.31 per share declared on December 21, 2017. |
▪ | GAAP net income of $21.4 million, or $0.51 per basic and diluted share. |
▪ | Core earnings plus drop income of $13.0 million, or $0.31 per basic and diluted share.1,2 |
▪ | Economic return on book value was 5.3%1,3 for the quarter. |
▪ | 1.79% annualized net interest margin on our investment portfolio. 1,4 |
▪ | Issued $115.0 million aggregate principal amount of 6.75% convertible senior unsecured notes, which included the underwriter’s $15.0 million over-allotment. |
▪ | 7.2x leverage as of December 31, 2017 (7.5x leverage when adjusted for net TBA positions). |
▪ | Acquired $254.0 million in target assets, including $195.5 million credit sensitive assets. |
▪ | Repurchased 125,722 common shares at an average price of $9.80 per share. |
Full Year 2017 Highlights
▪ | Full year book value per common share increased by $0.88 per share to $11.15, net of annual dividends. |
▪ | Maintained a consistent $0.31 per share quarterly common dividend throughout 2017 for total annual common dividends of $1.24 per share. |
▪ | GAAP net income of $85.1 million, or $2.03 per basic and diluted share. |
▪ | Core earnings plus drop income of $50.2 million, or $1.20 per basic and diluted share.1,2 |
▪ | Economic return on book value was 20.6%1,3 for the year. |
▪ | 2.06% annualized net interest margin. 1,4 |
▪ | Repositioned our investment portfolio: |
* | Acquired $1.8 billion in Agency CMBS and $402.7 million credit sensitive assets. |
* | Reduced Agency RMBS exposure by $622.5 million and legacy Non-Agency exposure by $246.0 million. |
▪ | Restructured our hedge positions, reducing our swap related interest expense by 48.3% year-over year. |
▪ | Recorded total expenses of $17.8 million, a year-over-year decrease of $3.5 million or 16.3% . |
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 $181 thousand and $1.9 million for the three months and the year ended December 31, 2017, 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
“As we look back on 2017, we delivered an exceptional fourth quarter and full year, generating an economic return on book value of 5.3% for the fourth quarter and 20.6% for the year, driven by strong consistent quarterly earnings and an increase in our book value of 8.6% for the year," said Jennifer Murphy, Chief Executive Officer of the Company. “We are continuing to reap the benefits of our repositioned and diversified portfolio and our focus on achieving operational efficiencies. Our ability to draw upon the deep investment experience and team at Western Asset Management Company, our Manager, as well as the breadth of its global investment, risk management, and operational infrastructure continued to enable us to deliver on our primary goal of providing our shareholders with an attractive dividend that is supported by sustainable core earnings, as well as the potential for appreciation in the value of our portfolio. In 2018, we will continue to focus on the objectives of maintaining strong core earnings while preserving our book value through portfolio diversification and risk management, with the overriding goal of providing our shareholders with an attractive risk-adjusted total economic return.”
Anup Agarwal, Chief Investment Officer of the Company, commented, “Our strong performance, for 2017,
was driven by contributions across our holdings and reflects the benefit of our strategy of investing in a diversified portfolio in a number of subsectors of the mortgage market. In late 2016 and throughout 2017, we implemented the repositioning of our portfolio with the primary objective of reducing our exposure to Agency RMBS and redeploying our capital into sectors that we believed provided more attractive risk-adjusted returns, which included Agency CMBS and credit sensitive investments, such as residential whole and bridge loans, re-performing loans that are packaged in well-structured securitization and commercial mezzanine loans, including junior tranches of Non-Agency CMBS. In 2018, under current market conditions we expect to look to add more credit sensitive investments, while continuing to reduce our Agency RMBS exposure. Our strategy paid off in 2017 and although of course there are no guarantees we believe that it will do so in 2018 as well, despite the recent volatility seen in the broader fixed income markets. We believe that investing in a diversified portfolio across a number of sub-sectors of the mortgage market is appropriate in this environment, and in our opinion, positions us well to continue generating attractive risk-adjusted returns for our shareholders."
2
2017 Quarterly Results
The below table reflects a summary of our operating results (dollars in thousands, except per share data):
For the Three Months Ended | ||||||||||||||||
GAAP Results | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | ||||||||||||
Net Interest Income | $ | 18,012 | $ | 18,565 | $ | 19,648 | $ | 19,693 | ||||||||
Other Income (Loss): | ||||||||||||||||
Realized gain (loss) on sale of investments, net | (2 | ) | 1,830 | (2,488 | ) | 21,258 | ||||||||||
Other than temporary impairment | (2,972 | ) | (7,225 | ) | (6,579 | ) | (6,097 | ) | ||||||||
Unrealized gain (loss), net | (6,730 | ) | 5,249 | 35,017 | (5,140 | ) | ||||||||||
Gain (loss) on derivative instruments, net | 19,327 | 7,217 | (18,555 | ) | (4,697 | ) | ||||||||||
Other, net | 190 | 216 | 222 | 403 | ||||||||||||
Other Income (loss) | 9,813 | 7,287 | 7,617 | 5,727 | ||||||||||||
Total Expenses | 4,206 | 4,240 | 4,466 | 4,866 | ||||||||||||
Income (loss) before income taxes | 23,619 | 21,612 | 22,799 | 20,554 | ||||||||||||
Income tax provision (benefit) | 2,215 | (1,155 | ) | 2,115 | 312 | |||||||||||
Net income (loss) | $ | 21,404 | $ | 22,767 | $ | 20,684 | $ | 20,242 | ||||||||
Net income (loss) per Common Share – Basic/Diluted | $ | 0.51 | $ | 0.54 | $ | 0.49 | $ | 0.48 | ||||||||
Non-GAAP Results | ||||||||||||||||
Core earnings plus drop income(1) | $ | 12,998 | $ | 13,511 | $ | 13,290 | $ | 10,281 | ||||||||
Core earnings plus drop income per Common Share – Basic/Diluted | $ | 0.31 | $ | 0.32 | $ | 0.32 | $ | 0.25 | ||||||||
Weighted average yield(2) | 3.82 | % | 4.00 | % | 4.13 | % | 4.39 | % | ||||||||
Effective cost of funds(3) | 2.22 | % | 1.99 | % | 2.17 | % | 2.81 | % | ||||||||
Annualized net interest margin(2)(3) | 1.79 | % | 2.21 | % | 2.25 | % | 2.01 | % | ||||||||
Annualized CPR on Agency RMBS | 10.0 | % | 11.2 | % | 9.9 | % | 10.5 | % | ||||||||
(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.
3
Portfolio Composition
As of December 31, 2017, the Company owned an aggregate investment portfolio totaling $3.7 billion. The following tables sets forth additional information regarding the Company’s investment portfolio as of December 31, 2017:
Portfolio Characteristics
Agency Portfolio
The following table summarizes certain characteristics of our Agency portfolio by issuer and investment category as of December 31, 2017 (dollars in thousands):
Principal Balance | Amortized Cost | Fair Value | Net Weighted Average Coupon | |||||||||||
Agency RMBS: | ||||||||||||||
20-Year mortgage | $ | 50,825 | $ | 53,203 | $ | 53,783 | 4.0 | % | ||||||
30-Year mortgage | 224,041 | 239,751 | 241,642 | 4.4 | % | |||||||||
40-Year mortage | 366,178 | 376,966 | 376,752 | 3.5 | % | |||||||||
Agency RMBS Interest-Only Strips | N/A | 14,750 | 15,437 | 2.9 | % | |||||||||
Agency RMBS Interest-Only Strips, accounted for as derivatives | N/A | N/A | 10,419 | 2.9 | % | |||||||||
Total Agency RMBS | 641,044 | 684,670 | 698,033 | 3.6 | % | |||||||||
Agency CMBS | 2,145,139 | 2,147,281 | 2,154,800 | 2.9 | % | |||||||||
Agency CMBS Interest-Only Strips | N/A | — | 10 | 3.2 | % | |||||||||
Agency CMBS Interest-Only Strips, accounted for as derivatives | N/A | N/A | 5,757 | 0.5 | % | |||||||||
Total Agency CMBS | 2,145,139 | 2,147,281 | 2,160,567 | 2.7 | % | |||||||||
Total | $ | 2,786,183 | $ | 2,831,951 | $ | 2,858,600 | 3.0 | % | ||||||
Credit Sensitive Portfolio
The following table summarizes certain characteristics of our credit sensitive portfolio by investment category as of December 31, 2017 (dollars in thousands):
Principal Balance | Amortized Cost | Fair Value | Weighted Average Coupon(1) | |||||||||||
Non-Agency RMBS | $ | 119,748 | $ | 85,520 | $ | 90,832 | 3.8 | % | ||||||
Non-Agency RMBS IOs and IIOs | N/A | 8,738 | 8,722 | 0.9 | % | |||||||||
Non-Agency CMBS | 379,183 | 292,034 | 278,604 | 4.8 | % | |||||||||
Residential Whole Loans | 232,270 | 233,101 | 237,423 | 4.5 | % | |||||||||
Residential Bridge Loans | 105,868 | 106,114 | 107,407 | 8.6 | % | |||||||||
Securitized Commercial Loan | 24,846 | 24,846 | 24,876 | 9.0 | % | |||||||||
Other Securities | 86,305 | 110,091 | 122,065 | 7.8 | % | |||||||||
$ | 948,220 | $ | 860,444 | $ | 869,929 | 4.4 | % | |||||||
4
Portfolio Financing and Hedging
Financing
Repurchase Agreements
As of December 31, 2017, the Company had $3.3 billion of borrowings under master repurchase agreements with 16 of its 28 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 under the master repurchase agreements as of December 31, 2017 (dollars in thousands):
Repurchase Agreements | Balance | Weighted Average Interest Rate (end of period) | Weighted Average Remaining Maturity (days) | ||||||
Agency RMBS | $ | 665,919 | 1.62 | % | 61 | ||||
Agency CMBS | 2,035,222 | 1.53 | % | 53 | |||||
Non-Agency RMBS | 46,530 | 2.76 | % | 41 | |||||
Non-Agency CMBS | 154,325 | 2.98 | % | 40 | |||||
Whole-Loans and securitized commercial loan | 189,270 | 3.66 | % | 8 | |||||
Residential Bridge Loans | 100,183 | 4.05 | % | 59 | |||||
Other Securities | 60,237 | 2.94 | % | 23 | |||||
Total | $ | 3,251,686 | 1.86 | % | 51 | ||||
Convertible Senior Unsecured Notes
In October 2017, the Company issued $115.0 million aggregate principal amount of 6.75% convertible senior unsecured notes, which included the underwriter's $15.0 million over-allotment for net proceeds of $111.1 million. The notes mature on October 1, 2022, unless earlier converted, redeemed or repurchased by the holders pursuant to their terms, and are not redeemable by the Company except during the final three months prior to maturity. The notes are convertible into, at the Company's election, cash, shares of the Company's common stock or a combination of both, subject to the satisfaction of certain conditions and during specified periods. The Company believe that this financing is an attractive source of longer term capital, which was more cost efficient than issuing straight equity.
Hedging
As of December 31, 2017, the Company had $1.7 billion notional value of pay-fixed interest rate swaps, excluding forward starting swaps of $1.5 billion (approximately 4 months forward), which have variable maturities between June 14, 2019 and April 27, 2037.
The following tables summarize the average pay rate and average maturity for the Company’s interest rate swaps as of December 31, 2017:
5
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) | ||||||||
Greater than 1 year and less than 3 years | 600,000 | 1.6 | % | 1.5 | % | 1.8 | ||||||
Greater than 3 years and less than 5 years | 960,000 | 2.0 | % | 1.4 | % | 4.3 | ||||||
Greater than 5 years | 1,692,200 | 2.5 | % | 1.4 | % | 10.5 | ||||||
Total | $ | 3,252,200 | 2.2 | % | 1.4 | % | 7.1 | |||||
Dividend
On December 21, 2017, 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 $15.30 per share in a combination of cash and stock.
Conference Call
The Company will host a conference call with a live webcast tomorrow, March 6th, 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, 2017.
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 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/10116949 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 20, 2018 by dialing (877) 344-7529 from the United States, or (412) 317-0088 from outside the United States, and entering conference ID 10116949. 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 CMBS, Agency RMBS, Non-Agency RMBS, Non-Agency CMBS, ABS, GSE Risk Transfer Securities and Residential Whole and Bridge Loans. 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
6
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; and legislative and regulatory changes that could adversely affect the business of the Company. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.
7
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-
8
Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands—except share and per share data)
December 31, 2017 | December 31, 2016 | |||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 48,024 | $ | 46,172 | ||||
Agency mortgage-backed securities, at fair value ($2,833,595 and $1,526,584 pledged as collateral, at fair value, respectively) | 2,858,600 | 1,841,594 | ||||||
Non-Agency mortgage-backed securities, at fair value ($266,189 and $667,084 pledged as collateral, at fair value, respectively) | 378,158 | 667,161 | ||||||
Other securities, at fair value ($89,823 and $67,762 pledged as collateral, at fair value, respectively) | 122,065 | 67,762 | ||||||
Residential Whole-Loans, at fair value ($237,423 and $192,136 pledged as collateral, at fair value, respectively) | 237,423 | 192,136 | ||||||
Residential Bridge Loans ($64,526 and $0 at fair value and $106,673 and $0 pledged as collateral, respectively) | 106,673 | — | ||||||
Securitized commercial loan, at fair value | 24,876 | 24,225 | ||||||
Investment related receivable | 7,665 | 33,600 | ||||||
Accrued interest receivable | 13,603 | 18,812 | ||||||
Due from counterparties | 86,930 | 243,585 | ||||||
Derivative assets, at fair value | 728 | 20,571 | ||||||
Other assets | 2,161 | 398 | ||||||
Total Assets (1) | $ | 3,886,906 | $ | 3,156,016 | ||||
Liabilities and Stockholders’ Equity: | ||||||||
Liabilities: | ||||||||
Borrowings under repurchase agreements, net | $ | 3,251,686 | $ | 2,155,644 | ||||
Convertible senior unsecured notes, net | 108,743 | — | ||||||
Securitized debt, at fair value | 10,945 | 10,659 | ||||||
Accrued interest payable | 8,322 | 16,041 | ||||||
Investment related payables | 17,217 | 341,458 | ||||||
Due to counterparties | 1,490 | 740 | ||||||
Derivative liability, at fair value | 4,346 | 182,158 | ||||||
Accounts payable and accrued expenses | 3,118 | 3,255 | ||||||
Payable to affiliate | 2,041 | 2,584 | ||||||
Dividend payable | 12,960 | 12,995 | ||||||
Total Liabilities (2) | 3,420,868 | 2,725,534 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Common stock, $0.01 par value, 500,000,000 shares authorized, and 41,794,079 and 41,919,801 outstanding, respectively | 419 | 419 | ||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding | — | — | ||||||
Treasury stock, at cost 125,722 and 0 shares held, respectively | (1,232 | ) | — | |||||
Additional paid-in capital | 768,763 | 765,042 | ||||||
Retained earnings (accumulated deficit) | (301,912 | ) | (334,979 | ) | ||||
Total Stockholders’ Equity | 466,038 | 430,482 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 3,886,906 | $ | 3,156,016 | ||||
9
Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets (Continued)
(in thousands—except share and per share data)
December 31, 2017 | December 31, 2016 | |||||||
(1) Assets of consolidated VIEs included in the total assets above: | ||||||||
Residential Whole-Loans, at fair value ($237,423 and $192,136 pledged as collateral, at fair value, respectively) | $ | 237,423 | $ | 192,136 | ||||
Residential Bridge Loans ($64,526 and $0 at fair value and $106,673 and $0 pledged as collateral, respectively) | 106,673 | — | ||||||
Securitized commercial loan, at fair value | 24,876 | 24,225 | ||||||
Investment related receivable | 7,665 | 1,241 | ||||||
Accrued interest receivable | 3,358 | 1,622 | ||||||
Total assets of consolidated VIEs | $ | 379,995 | $ | 219,224 | ||||
(2) Liabilities of consolidated VIEs included in the total liabilities above: | ||||||||
Securitized debt, at fair value | $ | 10,945 | $ | 10,659 | ||||
Accrued interest payable | 70 | 85 | ||||||
Accounts payable and accrued expenses | 189 | 2 | ||||||
Total liabilities of consolidated VIEs | $ | 11,204 | $ | 10,746 | ||||
10
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, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2017 | ||||||||||||||||
Net Interest Income | ||||||||||||||||||||
Interest income | $ | 34,878 | $ | 30,928 | $ | 30,055 | $ | 28,430 | $ | 124,291 | ||||||||||
Interest expense | 16,866 | 12,363 | 10,407 | 8,737 | 48,373 | |||||||||||||||
Net Interest Income | 18,012 | 18,565 | 19,648 | 19,693 | 75,918 | |||||||||||||||
Other Income (Loss) | ||||||||||||||||||||
Realized gain (loss) on sale of investments, net | (2 | ) | 1,830 | (2,488 | ) | 21,258 | 20,598 | |||||||||||||
Other than temporary impairment | (2,972 | ) | (7,225 | ) | (6,579 | ) | (6,097 | ) | (22,873 | ) | ||||||||||
Unrealized gain (loss), net | (6,730 | ) | 5,249 | 35,017 | (5,140 | ) | 28,396 | |||||||||||||
Gain (loss) on derivative instruments, net | 19,327 | 7,217 | (18,555 | ) | (4,697 | ) | 3,292 | |||||||||||||
Other, net | 190 | 216 | 222 | 403 | 1,031 | |||||||||||||||
Other Income (Loss) | 9,813 | 7,287 | 7,617 | 5,727 | 30,444 | |||||||||||||||
Expenses | ||||||||||||||||||||
Management fee to affiliate | 1,941 | 1,853 | 1,830 | 2,476 | 8,100 | |||||||||||||||
Other operating expenses | 564 | 702 | 736 | 417 | 2,419 | |||||||||||||||
General and administrative expenses | ||||||||||||||||||||
Compensation expense | 628 | 660 | 664 | 740 | 2,692 | |||||||||||||||
Professional fees | 741 | 781 | 832 | 888 | 3,242 | |||||||||||||||
Other general and administrative expenses | 332 | 244 | 404 | 345 | 1,325 | |||||||||||||||
Total general and administrative expenses | 1,701 | 1,685 | 1,900 | 1,973 | 7,259 | |||||||||||||||
Total Expenses | 4,206 | 4,240 | 4,466 | 4,866 | 17,778 | |||||||||||||||
Income (loss) before income taxes | 23,619 | 21,612 | 22,799 | 20,554 | 88,584 | |||||||||||||||
Income tax provision (benefit) | 2,215 | (1,155 | ) | 2,115 | 312 | 3,487 | ||||||||||||||
Net income (loss) | $ | 21,404 | $ | 22,767 | $ | 20,684 | $ | 20,242 | $ | 85,097 | ||||||||||
Net income (loss) per Common Share – Basic | $ | 0.51 | $ | 0.54 | $ | 0.49 | $ | 0.48 | $ | 2.03 | ||||||||||
Net income (loss) per Common Share – Diluted | $ | 0.51 | $ | 0.54 | $ | 0.49 | $ | 0.48 | $ | 2.03 | ||||||||||
Dividends Declared per Share of Common Stock | $ | 0.31 | $ | 0.31 | $ | 0.31 | $ | 0.31 | $ | 1.24 | ||||||||||
(1) Consolidated Statements of Operations for each of the three months ended March 31, 2017, June 30, 2017 September 30, 2017 and December 31, 2017 are unaudited.
11
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, 2017, June 30, 2017, September 30, 2017 and December 31, 2017 and the year ended December 31, 2017:
Three Months Ended | The Year Ended | |||||||||||||||||||
(dollars in thousands) | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2017 | |||||||||||||||
Net Income (loss) – GAAP | $ | 21,404 | $ | 22,767 | $ | 20,684 | $ | 20,242 | $ | 85,097 | ||||||||||
Provision for income tax | 2,215 | (1,155 | ) | 2,115 | 312 | 3,487 | ||||||||||||||
Net income (loss) before provision for income tax | 23,619 | 21,612 | 22,799 | 20,554 | 88,584 | |||||||||||||||
Adjustments: | ||||||||||||||||||||
Investments: | ||||||||||||||||||||
Unrealized (gain) loss on investments and securitized debt | 6,730 | (5,249 | ) | (35,017 | ) | 5,140 | (28,396 | ) | ||||||||||||
Other than temporary impairment | 2,972 | 7,225 | 6,579 | 6,097 | 22,873 | |||||||||||||||
Realized (gain) loss on sale of investments | 2 | (1,830 | ) | 2,488 | (21,258 | ) | (20,598 | ) | ||||||||||||
Realized (gain) loss on foreign currency transactions | — | (1 | ) | 1 | 1 | 1 | ||||||||||||||
Whole-Loans acquisition costs | 39 | — | 76 | 31 | 146 | |||||||||||||||
Derivative Instruments: | ||||||||||||||||||||
Net realized (gain) loss on derivatives | (28,658 | ) | (9,062 | ) | 175,512 | (800 | ) | 136,992 | ||||||||||||
Unrealized (gain) loss on derivatives | 7,790 | 598 | (160,002 | ) | (851 | ) | (152,465 | ) | ||||||||||||
Amortization of discount on convertible senior note | 137 | — | — | — | 137 | |||||||||||||||
Non-cash stock-based compensation expense | 186 | 218 | 215 | 362 | 981 | |||||||||||||||
Total adjustments | (10,802 | ) | (8,101 | ) | (10,148 | ) | (11,278 | ) | (40,329 | ) | ||||||||||
Core Earnings – Non-GAAP | $ | 12,817 | $ | 13,511 | $ | 12,651 | $ | 9,276 | $ | 48,255 | ||||||||||
Basic Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP | $ | 0.31 | $ | 0.32 | $ | 0.30 | $ | 0.22 | $ | 1.15 | ||||||||||
Diluted Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP | $ | 0.31 | $ | 0.32 | $ | 0.30 | $ | 0.22 | $ | 1.15 | ||||||||||
Basic weighted average common shares and participating securities | 41,938,559 | 41,992,381 | 41,979,854 | 41,973,170 | 41,971,117 | |||||||||||||||
Diluted weighted average common shares and participating securities | 41,938,559 | 41,992,381 | 41,979,854 | 41,973,170 | 41,971,117 | |||||||||||||||
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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, 2017, June 30, 2017, September 30, 2017 and December 31, 2017 and the year ended December 31, 2017:
Three Months Ended | The Year Ended | |||||||||||||||||||
(dollars in thousands) | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2017 | |||||||||||||||
Coupon interest income | $ | 36,544 | $ | 31,223 | $ | 30,270 | $ | 29,915 | $ | 127,952 | ||||||||||
Premium amortization, discount accretion and amortization of basis, net | (1,666 | ) | (295 | ) | (215 | ) | (1,485 | ) | (3,661 | ) | ||||||||||
Interest income | $ | 34,878 | $ | 30,928 | $ | 30,055 | $ | 28,430 | $ | 124,291 | ||||||||||
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1): | ||||||||||||||||||||
Coupon interest income | 1,209 | 1,816 | 2,372 | 2,041 | 7,438 | |||||||||||||||
Amortization of basis (Non-GAAP Financial Measure) | (940 | ) | (1,486 | ) | (2,004 | ) | (1,565 | ) | (5,995 | ) | ||||||||||
Contractual interest income, net on Foreign currency swaps(1) | — | — | — | — | — | |||||||||||||||
Contractual interest income, net on Total return swaps(1) | — | 95 | 143 | 231 | 469 | |||||||||||||||
Subtotal | 269 | 425 | 511 | 707 | 1,912 | |||||||||||||||
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 | $ | 35,147 | $ | 31,353 | $ | 30,566 | $ | 29,137 | $ | 126,203 | ||||||||||
(1) Reported in gain (loss) on derivative instruments in the Consolidated Statement of Operations.
The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for each of the three months ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017:
Three Months Ended | ||||||||||||||||||||||||||||
December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | |||||||||||||||||||||||||
(dollars in thousands) | Interest | Effective Borrowing Costs | Interest | Effective Borrowing Costs | Interest | Effective Borrowing Costs | Interest | Effective Borrowing Costs | ||||||||||||||||||||
Interest expense | $ | 16,866 | 2.01 | % | $ | 12,363 | 1.75 | % | $ | 10,407 | 1.62 | % | $ | 8,737 | 1.55 | % | ||||||||||||
Net interest paid - interest rate swaps | 1,798 | 0.21 | % | 1,672 | 0.24 | % | 3,556 | 0.55 | % | 7,056 | 1.26 | % | ||||||||||||||||
Effective Borrowing Costs | $ | 18,664 | 2.22 | % | $ | 14,035 | 1.99 | % | $ | 13,963 | 2.17 | % | $ | 15,793 | 2.81 | % | ||||||||||||
Weighted average borrowings | $ | 3,334,251 | $ | 2,797,062 | $ | 2,582,946 | $ | 2,280,026 | ||||||||||||||||||||
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The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the years ended December 31, 2017 and 2016:
The Year Ended | ||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||
(dollars in thousands) | Interest | Effective Borrowing Costs | Interest | Effective Borrowing Costs | ||||||||||
Interest expense | $ | 48,373 | 1.76 | % | $ | 32,430 | 1.30 | % | ||||||
Net interest paid - interest rate swaps | 14,082 | 0.51 | % | 27,231 | 1.10 | % | ||||||||
Effective Borrowing Costs | $ | 62,455 | 2.27 | % | $ | 59,661 | 2.40 | % | ||||||
Weighted average borrowings | $ | 2,832,926 | $ | 2,486,490 | ||||||||||
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