Exhibit 99.1
WESTERN ASSET MORTGAGE CAPITAL CORPORATION
ANNOUNCES FIRST QUARTER 2015 RESULTS
Conference Call and Webcast Scheduled for today at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time
Pasadena, CA, May 6, 2015 – Western Asset Mortgage Capital Corporation (NYSE: WMC) today reported its results for the first quarter ended March 31, 2015. For the first quarter, the Company recorded GAAP net income of $14.1 million, or $0.34 per basic and diluted share. Core earnings plus drop income for the first quarter was $34.4 million, or $0.82 per basic and diluted share1,2. The Company also reported a net book value of $14.55 per share as of March 31, 20153 and previously declared a $0.67 per share dividend for the quarter.
FIRST QUARTER 2015 HIGHLIGHTS
· Paid a quarterly cash dividend of $0.67 per share
· Recorded GAAP net income of $14.1 million, or $0.34 per basic and diluted share
o Net income includes $28.4 million of net unrealized gain on mortgage- backed securities (“MBS”), other securities and whole-loans (“Whole-Loans”); $7.5 million of net realized gain on MBS, other securities and Whole-Loans; and $48.3 million of net loss on derivative instruments
· Generated core earnings plus drop income of $34.4 million, or $0.82 per basic and diluted share1,2 of which $0.11 or approximately 13% was attributable to dollar roll income associated with the Company’s “to-be-announced” or TBA positions2
· $14.55 per share net book value as of March 31, 20153 versus $14.94 as of December 31, 2014
· Generated an economic return for the quarter of 1.9%4
· 3.16% weighted average net interest spread on Agency and Non-Agency residential MBS (“RMBS”), commerical mortgage backed securities (“CMBS”), asset-backed securities (“ABS”), other securities and Whole-Loans, including interest only (“IO”) securities accounted for as derivatives1
· $4.2 billion investment portfolio fair value as of March 31, 2015
o 28% of the total portfolio consists of non-government or Non-Agency (“credit”) securites, including Non-Agency RMBS, CMBS, GSE credit risk sharing securities, Residential and Commercial Whole-Loans and ABS
· Constant prepayment rate on its Agency RMBS portfolio of 7.6% for the quarter
· 6.0x leverage as of March 31, 2015
o 7.2x leverage when adjusted for net TBA position 1, 5
1 Non – GAAP measure.
COMMENTARY ON QUARTER
“We are pleased to continue to produce positive results in these challenging and volatile markets,” said Gavin James, Chief Executive Officer of Western Asset Mortgage Capital Corporation. “During the quarter, we generated $0.82 of core plus drop income and paid a dividend of $0.67. Our continued consistent performance reflects the strength of the Western platform and our versatile approach to investing across the mortgage market and the broader fixed income and credit markets.”
Anup Agarwal, Chief Investment Officer of Western Asset Mortgage Capital Corporation, commented, “During the first quarter, we continued to actively manage our portfolio, harvesting gains in securities that we believed had reached full value and reallocating our holdings among certain sectors of the RMBS market. In addition, we increased our exposure to Residential Whole-Loans and made our first investment in Commercial Whole-Loans during the quarter. Our securities and loan portfolio experienced additional price appreciation, however we were once again impacted by unrealized losses on our interest rate hedges as rates moved toward the low end of our expected range. We believe that we are well positioned to generate continued positive results over the remainder of the year, based on our expectations that the Federal Reserve will act gradually against a backdrop of a modestly improving U.S. economy.”
FIRST QUARTER 2015 RESULTS
For the first quarter ended March 31, 2015, the Company recorded GAAP net income of $14.1 million, or $0.34 per basic and diluted share. This compares to net income of $15.4 million, or $0.37 per basic and diluted share for the fourth quarter ended December 31, 2014. During the first quarter of 2015, the Company generated core earnings plus drop income of $34.4 million, or $0.82 per basic and diluted share. This compares to core earnings plus drop income of $36.4 million, or $0.87 per basic and diluted share for the fourth quarter ended December 31, 2014. 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) gain (loss) resulting from mark-to-market adjustments on derivative contracts; (iv) other loss on MBS and other securities; (v) non-cash stock-based compensation expense; and
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.
3 March 31, 2015 book value per share reflects the $0.67 per share dividend declared on March 26, 2015 and paid on April 28, 2015.
4 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.
5 6.0x leverage calculation does not reflect net To-Be Announced (“TBA”) mortgage pass-through certificates position. As of March 31, 2015, the net long position in TBAs was $737.0 million in notional value.
(vi) certain other non-cash charges. Drop income represents a non-GAAP financial measure and is derived from the use of ‘to-be-announced’ forward contract (“TBA”) dollar roll transactions and is defined as the difference between the spot price and the forward settlement price for a comparable security on the trade date.
For the quarter ended March 31, 2015, average amortized cost of MBS, other securities and Whole-Loans held, including Agency and Non-Agency IO Strips accounted for as derivatives, was $4.32 billion, as compared to $4.45 billion for the quarter ended December 31, 2014.
For the quarter ended March 31, 2015, the Company’s weighted average yield on its portfolio was 3.97%, including Agency and Non-Agency MBS, other securities and Whole-Loans, and interest from Interest-Only securities accounted for as derivatives. The Company’s effective cost of funds on its financing of its Agency and Non-Agency MBS, other securities and Whole-Loans, and from its Interest-Only securities accounted for as derivatives (including the cost of interest rate swaps) was 0.81%. The annualized net interest spread on its portfolio was 3.16%, including Agency and Non-Agency MBS, other securities and Whole-Loans, interest from Interest-Only securities accounted for as derivatives, and taking into account the cost of the interest rate swaps. This compares with a weighted average yield of 3.79%, an effective cost of funds of 1.08%, and an annualized net interest spread of 2.71% for the quarter ended December 31, 2014.
The actual constant prepayment rate (“CPR”) for the Company’s Agency RMBS portfolio during the first quarter was 7.6% on an annualized basis, as compared to 6.8% for the fourth quarter of 2014.
DIVIDEND
On March 26, 2015, the Company declared a regular cash dividend of $0.67 per share for each common share. Since inception in May of 2012, the Company has declared and paid total dividends of $10.86 per share in a combination of cash and stock.
PORTFOLIO COMPOSITION
As of March 31, 2015, the Company owned an aggregate securities and loan portfolio equaling $4.18 billion in market value, comprised of $1.46 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), $1.25 billion of 20-year fixed-rate Agency RMBS, $500.2 million of Non-Agency RMBS, $462.3 million of Agency and Non-Agency CMBS, $164.7 million of Agency MBS Interest-Only and $93.2 million of Agency MBS Inverse Interest-Only strips, $2.5 million of Non-Agency MBS Interest-Only and $91.4 million of Non-Agency MBS Inverse Interest-Only strips, $125.6 million of other securities, and $26.8 million of Residential and Commercial Whole-Loans.
The following table sets forth additional information regarding the Company’s portfolio as of March 31, 2015:
Portfolio
($ in millions)
Agency |
| Coupon |
| Principal |
| Amortized |
| Estimated Fair |
|
30-year fixed rate |
| 3.5% |
| $247.4 |
| $265.5 |
| $261.9 |
|
|
| 4.0% |
| $457.5 |
| $494.7 |
| $497.3 |
|
|
| 4.5% |
| $555.2 |
| $595.9 |
| $619.6 |
|
|
| 5.5% |
| $64.7 |
| $72.7 |
| $74.2 |
|
|
| 6.0% |
| $7.5 |
| $8.4 |
| $8.6 |
|
20-year fixed rate |
| 3.0% |
| $312.8 |
| $326.9 |
| $325.6 |
|
|
| 3.5% |
| $274.4 |
| $290.2 |
| $290.9 |
|
|
| 4.0% |
| $588.7 |
| $621.4 |
| $637.1 |
|
|
|
|
|
|
|
|
|
|
|
Agency RMBS IOs and IIOs(1) |
| 3.9% |
| N/A |
| $232.1 |
| $239.9 |
|
Agency CMBS |
| 4.9% |
| $25.0 |
| $25.0 |
| $25.2 |
|
Agency CMBS IOs and IIOs(2) |
| 1.3% |
| N/A |
| $17.8 |
| $18.0 |
|
Total Agency |
| 3.7% |
|
|
| $2,950.6 |
| $2,998.3 |
|
|
|
|
|
|
|
|
|
|
|
Non-Agency |
|
|
|
|
|
|
|
|
|
Non-Agency RMBS |
| 3.9% |
| $653.7 |
| $491.9 |
| $500.2 |
|
Non-Agency RMBS IOs and IIOs(3) |
| 6.1% |
| N/A |
| $79.8 |
| $94.0 |
|
Non-Agency CMBS |
| 5.4% |
| $472.9 |
| $436.3 |
| $437.0 |
|
Total Non-Agency |
| 4.9% |
|
|
| $1,008.0 |
| $1,031.2 |
|
|
|
|
|
|
|
|
|
|
|
Other Securities |
| 5.2% |
| $118.9 |
| $125.7 |
| $125.6 |
|
|
|
|
|
|
|
|
|
|
|
Residential whole-loans |
| 5.2% |
| $17.2 |
| $17.5 |
| $17.9 |
|
Commercial whole-loans |
| 8.3% |
| $8.8 |
| $8.8 |
| $8.9 |
|
Total Portfolio |
| 4.1% |
|
|
| $4,110.6 |
| $4,181.9 |
|
(1) Includes $62.7 million of amortized cost and $62.9 million of fair value for Agency RMBS IOs and IIOs accounted for as derivatives for GAAP.
(2) Includes $14.3 million of amortized cost and $14.3 million of fair value for Agency CMBS IOs and IIOs accounted for as derivatives for GAAP.
(3) Includes $3.4 million of amortized cost and $4.2 million of fair value for Non-Agency RMBS IOs and IIOs accounted for as derivatives for GAAP.
PORTFOLIO FINANCING
At March 31, 2015, the Company financed its portfolio with $3.6 billion of borrowings under master repurchase agreements with twenty (20) of its twenty-five (25) approved counterparties, bearing fixed interest rates with maturities between April 2015 and March 2016.
The Company has also entered into approximately $4.5 billion notional amount of pay-fixed interest rate swaps, excluding forward starting swaps of $2.4 billion (approximately 6.6 months forward) that have variable maturities between October 2015 and February 2044, and $3.1 billion notional amount of pay-variable interest rate swaps, excluding forward starting swaps of $265.2 million (approximately 20.4 months forward) that have variable maturities between December 2016 and February 2045. In addition, the Company has entered into approximately $655.0 million notional amount of pay-fixed interest rate swaptions with swap terms ranging from one to ten years and exercise expiration dates between June 2015 and June 2016.
The following table sets forth additional information regarding the Company’s portfolio financing as of March 31, 2015:
Financing as of March 31, 2015
($ in millions)
Repurchase agreements |
| Balance |
| Weighted |
| Weighted |
|
Agency RMBS |
| $2,793.3 |
| 0.41% |
| 38 |
|
Non-Agency RMBS |
| $413.5 |
| 1.60% |
| 39 |
|
Agency and Non-Agency CMBS |
| $345.9 |
| 1.57% |
| 36 |
|
Other Securities and Residential Whole-Loans |
| $96.2 |
| 1.64% |
| 62 |
|
Total |
| $3,648.9 |
| 0.68% |
| 39 |
|
The following tables summarize the average pay rate and average maturity for the Company’s interest rate swaps as of March 31, 2015:
Fixed Pay Rate Swap Transactions ($ in millions) |
|
|
|
|
|
|
|
Remaining Term to |
| Notional |
| Average |
| Average |
|
1 year or less |
| $639.3 |
| 0.5% |
| 0.9 |
|
> 1 year to 3 years |
| $1,422.3 |
| 0.9% |
| 1.8 |
|
> 3 years to 5 years |
| $1,126.5 |
| 1.7% |
| 4.4 |
|
> 5 years |
| $3,685.5 |
| 2.7% |
| 9.5 |
|
Total Fixed Pay Rate |
| $6,873.6 |
| 2.0% |
| 6.3 |
|
Variable Pay Rate Swap Transactions ($ in millions) |
|
|
|
|
|
|
|
Remaining Term to |
| Notional |
| Average |
| Average |
|
> 1 year to 3 years |
| $220.0 |
| 0.3% |
| 1.8 |
|
> 3 years to 5 years |
| $1,251.8 |
| 0.3% |
| 4.6 |
|
> 5 years |
| $1,854.1 |
| 0.2% |
| 11.9 |
|
Total |
| $3,325.9 |
| 0.3% |
| 8.5 |
|
CONFERENCE CALL
The Company will host a conference call with a live webcast today, May 6, at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time, to discuss financial results for the first quarter ended March 31, 2015.
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.
A telephone replay will be available through May 27, 2015 by dialing 877.344.7529 from the United States, or 412.317.0088 from outside the United States, and entering conference ID 10065304. A webcast replay will be available for one year.
ABOUT WESTERN ASSET MORTGAGE CAPITAL CORPORATION
Western Asset Mortgage Capital Corporation is a mortgage REIT that invests 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 as well as commercial mortgage-backed securities or CMBS, asset backed securities or ABS, Residential and Commercial Whole-Loans and/or whole-loan securities and other securities. The Company’s investment strategy may change, subject to the Company’s stated investment guidelines, and is based on our 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 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 Company’s annual report on Form 10-K for the period ended December 31, 2014 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, 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-
Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(in thousands—except share and per share data)
|
| March 31, 2015 |
| December 31, 2014 |
Assets: |
|
|
|
|
Cash and cash equivalents | $ | 25,482 | $ | 47,222 |
Mortgage-backed securities and other securities, at fair value ($4,122,610 and $4,362,532 pledged as collateral, at fair value, respectively) |
| 4,155,093 |
| 4,385,723 |
Residential Whole-Loans, at fair value ($17,860 and $7,220 pledged as collateral, at fair value, respectively) |
| 17,860 |
| 7,220 |
Commercial Whole-Loan, at fair value |
| 8,900 |
| - |
Linked transactions, net, at fair value |
| - |
| 20,627 |
Receivable under reverse repurchase agreements |
| 65,674 |
| - |
Investment related receivable |
| 5,816 |
| 162,837 |
Accrued interest receivable |
| 31,842 |
| 27,309 |
Due from counterparties |
| 236,192 |
| 184,757 |
Derivative assets, at fair value |
| 119,552 |
| 73,256 |
Other assets |
| 171 |
| 326 |
Total Assets | $ | 4,666,582 | $ | 4,909,277 |
|
|
|
|
|
Liabilities and Stockholders’ Equity: |
|
|
|
|
Liabilities: |
|
|
|
|
Borrowings under repurchase agreements | $ | 3,648,939 | $ | 3,875,721 |
Accrued interest payable |
| 16,326 |
| 17,573 |
Investment related payables |
| 5,522 |
| 166,608 |
Due to counterparties |
| 74,553 |
| 12,180 |
Derivative liability, at fair value |
| 277,687 |
| 180,280 |
Accounts payable and accrued expenses |
| 2,635 |
| 1,794 |
Payable to related party |
| 2,883 |
| 2,705 |
Dividend payable |
| 28,086 |
| 29,204 |
Total Liabilities |
| 4,056,631 |
| 4,286,065 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
Common stock, $0.01 par value, 500,000,000 shares authorized, 41,919,801 and 41,719,801 shares issued and outstanding, respectively |
| 419 |
| 417 |
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding |
| - |
| - |
Additional paid-in capital |
| 761,612 |
| 760,925 |
Retained earnings (accumulated deficit) |
| (152,080) |
| (138,130) |
Total Stockholders’ Equity |
| 609,951 |
| 623,212 |
Total Liabilities and Stockholders’ Equity | $ | 4,666,582 | $ | 4,909,277 |
Western Asset Mortgage Capital Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(in thousands—except share and per share data)
|
| For the three months |
| For the three months |
| ||
|
|
|
|
|
| ||
Net Interest Income: |
|
|
|
|
| ||
Interest income |
| $ | 40,806 |
| $ | 23,430 |
|
Interest expense |
| 6,402 |
| 3,390 |
| ||
Net Interest Income |
| 34,404 |
| 20,040 |
| ||
|
|
|
|
|
| ||
Other Income (Loss): |
|
|
|
|
| ||
Interest income on cash balances and other income (loss), net |
| 2,384 |
| (12) |
| ||
Realized gain (loss) on sale of Mortgage-backed securities, other securities and Whole-Loans, net |
| 7,468 |
| 3,716 |
| ||
Other loss on Mortgage-backed securities and other securities |
| (4,651) |
| (1,709) |
| ||
Unrealized gain (loss) on Mortgage-backed securities, other securities and Whole-Loans, net |
| 28,410 |
| 31,091 |
| ||
Gain on linked transactions, net |
| - |
| 2,219 |
| ||
Gain (loss) on derivative instruments, net |
| (48,302) |
| (59,906) |
| ||
Other Income (Loss), net |
| (14,691) |
| (24,601) |
| ||
|
|
|
|
|
| ||
Operating Expenses: |
|
|
|
|
| ||
General and administrative (includes $679 and $588 non-cash stock based compensation, respectively) |
| 2,874 |
| 2,075 |
| ||
Management fee – related party |
| 2,693 |
| 1,805 |
| ||
Total Operating Expenses |
| 5,567 |
| 3,880 |
| ||
|
|
|
|
|
| ||
Net income (loss) available to Common Stock and participating securities |
| $ | 14,146 |
| $ | (8,441) |
|
|
|
|
|
|
| ||
Net income (loss) per Common Share – Basic |
| $ | 0.34 |
| $ | (0.32) |
|
Net income (loss) per Common Share – Diluted |
| $ | 0.34 |
| $ | (0.32) |
|
Dividends Declared per Share of Common Stock |
| $ | 0.67 |
| $ | 0.67 |
|
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 the three months ended March 31, 2015 and March 31, 2014:
(dollars in thousands) |
| For the here months |
| For the here months |
| ||
|
|
|
|
|
| ||
Net Income (loss) – GAAP |
| $ | 14,146 |
| $ | (8,441) |
|
Adjustments: |
|
|
|
|
| ||
|
|
|
|
|
| ||
MBS, other securities and Whole-Loans: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Unrealized gain on MBS, other securities and Whole-Loans |
| (28,410) |
| (31,091) |
| ||
Other loss on mortgage-backed and other securities |
| 4,651 |
| 1,709 |
| ||
Realized gain on sale of MBS and other securities |
| (7,468) |
| (3,716) |
| ||
|
|
|
|
|
| ||
Derivative Instruments: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Realized (gain) loss on termination of interest rate swaps |
| 1,049 |
| (2) |
| ||
Realized gain on settlement of TBAs |
| (7,448) |
| (2,370) |
| ||
Realized gain on currency forwards |
| (646) |
| - |
| ||
Realized gain on sale of swaptions |
| (713) |
| - |
| ||
Realized gain on sale/unlinking of securities underlying linked transactions |
| - |
| (1,290) |
| ||
Realized loss on Agency Interest-Only Strips – accounted for as derivatives |
| 2 |
| 869 |
| ||
Realized gain on foreign currency transactions |
| (1,705) |
| - |
| ||
Unrealized gains on foreign currency transactions |
| (691) |
| - |
| ||
Mark-to- market adjustments on interest rate swaps |
| 53,205 |
| 45,496 |
| ||
Mark-to- market adjustments on interest rate swaptions |
| 873 |
| 9,324 |
| ||
Mark-to-market adjustments on futures contracts |
| 74 |
| (118) |
| ||
Mark-to- market adjustments on TBAs |
| 2,651 |
| 468 |
| ||
Mark-to-market adjustments on linked transactions |
| - |
| (226) |
| ||
Mark-to-market adjustments on derivative instruments |
| 2,395 |
| 1,220 |
| ||
Mark-to-market adjustments on foreign currency swaps |
| (4,356) |
| - |
| ||
Mark-to-market adjustments on foreign currency forwards |
| 1,195 |
| - |
| ||
|
|
|
|
|
| ||
Non-cash stock-based compensation expense |
| 679 |
| 588 |
| ||
Total adjustments |
| 15,337 |
| 20,861 |
| ||
Core Earnings – Non-GAAP Financial Measure |
| $ | 29,483 |
| $ | 12,420 |
|
|
|
|
|
|
| ||
Basic Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP Financial Measure |
| $ | 0.71 |
| $ | 0.46 |
|
Diluted Core Earnings per Share of Common Stock and Participating Securities - Non-GAAP Financial Measure |
| $ | 0.71 |
| $ | 0.46 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| ||
Basic weighted average common shares and participating securities |
| 41,803,480 |
| 26,907,391 |
| ||
Diluted weighted average common shares and participating securities |
| 41,803,480 |
| 26,907,391 |
| ||
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 and interest income on linked transactions prior to January 1, 2015(Non-GAAP financial measure) for the three months ended March 31, 2015 and March 31, 2014:
(in thousands) |
| For the three |
| For the three months |
| ||
Coupon interest income |
| $ | 57,680 |
| $ | 34,578 |
|
Premium accretion, discount amortization and amortization of basis, net |
| (16,874) |
| (11,148) |
| ||
Interest income |
| $ | 40,806 |
| $ | 23,430 |
|
|
|
|
|
|
| ||
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1): |
|
|
|
|
| ||
Coupon interest income |
| $ | 5,654 |
| $ | 8,426 |
|
Amortization of basis (Non-GAAP Financial Measure) |
| (4,478) |
| (5,592) |
| ||
Contractual interest income, net on Foreign currency swaps(1) |
| 216 |
| - |
| ||
Contractual interest income, net of premium amortization, discount accretion and amortization of basis on Linked transactions (2): |
|
|
|
|
| ||
Coupon interest |
| - |
| 3,100 |
| ||
Premium amortization, discount accretion and amortization of basis, net |
| - |
| (2,172) |
| ||
Subtotal |
| 1,392 |
| 3,762 |
| ||
Total interest income, including interest income on Agency and Non-Agency Interest-Only Strips, classified as derivatives and Linked transactions - Non-GAAP Financial Measure |
| $ | 42,198 |
| $ | 27,192 |
|
(1) Reported in gain (loss) on derivative instruments in the Consolidated Statement of Operations.
(2) Reported in gain (loss) on linked transactions in the Consolidated Statement of Operations.
The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the three months ended March 31, 2015 and March 31, 2014:
|
| For the three months ended March |
| For the three months ended March |
| ||||||
(dollars in thousands) |
| Reconciliation |
| Cost of |
| Reconciliation |
| Cost of |
| ||
|
|
|
|
|
|
|
|
|
| ||
Interest expense |
| $ | 6,402 |
| 0.65 | % | $ | 3,390 |
| 0.53 | % |
Interest expense on linked transactions |
| - |
| - |
| 225 |
| 1.73 | % | ||
Net interest paid - interest rate swaps |
| 1,413 |
| 0.16 | % | 7,852 |
| 0.61 | % | ||
Effective Borrowing Costs |
| $ | 7,815 |
| 0.81 | % | $ | 11,467 |
| 1.77 | % |
Weighted average repurchase borrowings (1) |
| 3,927,321 |
|
|
| 2,628,790 |
|
|
| ||
(1) Includes average repurchase borrowings under linked transactions for the three months ended March 31, 2014.