Western Asset Mortgage Capital Corporation Announces Fourth Quarter And Full Year 2016 Results

PASADENA, Calif., March 6, 2017

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.

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."