PASADENA, Calif., Nov. 5,
2020 /PRNewswire/ -- Western Asset Mortgage Capital
Corporation (the "Company" or "WMC") (NYSE: WMC) today reported its
results for the third quarter ended September 30, 2020.
THIRD QUARTER 2020 FINANCIAL RESULTS
We made further progress towards strengthening our balance sheet
in the third quarter by reducing debt and leverage, while improving
liquidity, shareholders equity and the earnings power of the
portfolio. We had improved financial results during the third
quarter, which included significant recovery in asset valuations,
increasing book value by 29.2%. Third quarter financial
results included the following:
- GAAP book value per share was $4.07, increased $0.92 from $3.156 in the second quarter.
- GAAP net income of $59.8 million,
or $0.98 per basic and diluted
share.
- Economic return on GAAP book value was 30.8% for the
quarter.1,3
- Economic book value per share of $4.112 increased 2.2% from
$4.026 in the second
quarter
- Core earnings of $6.4 million, or
$0.10 per basic and diluted
share.1
- 2.27% annualized net interest margin on our investment
portfolio. 1,4,5
- Reduced recourse leverage to 2.2x, down from 3.0x at
June 30, 2020.
- Resumed our quarterly dividend, declaring a $0.05 per share cash dividend.
CORPORATE UPDATE
The measures taken to strengthen our balance sheet included, but
were not limited to, the following:
- In July 2020, the Company retired
$5.0 million of its 6.75% Convertible
Senior Notes at a 25% discount to par value, in exchange for the
issuance of 1.4 million shares of our common stock.
- Reduced leverage on our commercial loan portfolio, financed
under the commercial whole loan facility by 21.9%.
- In October 2020, we amended our
existing residential loan facility. The amended facility has a 12
month term bearing an interest rate of one month LIBOR plus
2.75%.
1
|
Non – GAAP
measure.
|
2
|
Economic book value
is a non-GAAP financial measure. See the reconciliation of GAAP
book value to non-GAAP economic book value.
|
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.
|
5
|
Excludes the
consolidation of VIE trusts required under GAAP.
|
6
|
GAAP book value and
Economic book value at June 30, 2020 was revised to reflect the
under accrual of interest expense in the amount of $1.5
million.
|
MANAGEMENT COMMENTARY
"The Company delivered a very strong economic return on book
value of 30.8% for the third quarter of 2020, reflecting a
significant recovery in asset prices across our portfolio," said
Jennifer Murphy, Chief Executive
Officer of the Company. "During the last two quarters, we have
taken actions to fortify our balance sheet and improve the future
earnings power of the portfolio. These measures include reducing
our portfolio leverage to 2.2x recourse debt (down from 9.5x in
March), securing longer-term financing at attractive levels,
significantly reducing our reliance on short term repurchase
agreements, issuing common equity at a premium to book value, and
converting some of our outstanding notes to equity at a significant
discount to par value. We believe that these actions positioned us
to benefit from the recovery in asset values that occurred this
quarter, while improving the sustainable earnings power of the
portfolio. As a result, we are pleased to have resumed payment of
our quarterly dividend, which was an important milestone for our
shareholders and the Company."
Ms. Murphy continued, "We recorded GAAP net income of
$59.8 million, or $0.98 per share, and core earnings of
$0.10 per share during the third
quarter, reflecting lower portfolio leverage and a slightly higher
net interest margin. Our GAAP Book Value increased 29.2% during the
quarter to $4.07 per share, and our
Economic Book Value improved to $4.11
per share as of September 30, 2020.
Our commitment to shareholders continues to be to protect and grow
the value of the portfolio, which will position us to deliver on
our long term objectives of generating sustainable core earnings
that support an attractive dividend, with the overall goal of
protecting and enhancing value for the benefit of our
shareholders," Ms. Murphy concluded.
Harris Trifon, Chief Investment
Officer of the Company, commented, "The equity and credit markets
continued to rebound in the third quarter, driven by improved
liquidity conditions across financial markets and the ongoing
reopening of the economy, which translated into higher valuations
on a number of our portfolio holdings. The improved recovery in
asset prices is reflected in the significant improvement in GAAP
Book Value. Our view remains that the economy will continue
to gradually improve, although the timing and strength of that
recovery remains dependent on the future trajectory of COVID-19 and
fiscal and monetary stimulus. In the meantime, our focus on
maintaining sufficient liquidity and positioning of our portfolio
for potential future appreciation should continue to enable us to
benefit from a recovery as we have invested in assets we believe
are high quality with borrowers who have resources to be more
resilient in a protracted downturn."
OPERATING RESULTS
The below table reflects a summary of our operating results:
|
|
For the Three
Months Ended
|
GAAP
Results
|
|
September 30,
2020
|
|
June 30,
2020
(Revised)(5)
|
|
March 31,
2020
|
|
|
(in
thousands-except share and per share data)
|
|
|
|
|
|
|
|
Net Interest
Income
|
|
$
|
10,117
|
|
|
$
|
7,076
|
|
|
$
|
18,741
|
|
Other Income
(Loss):
|
|
|
|
|
|
|
Realized gain (loss)
on investments, net
|
|
718
|
|
|
(6,960)
|
|
|
89,186
|
|
Unrealized gain
(loss), net
|
|
54,690
|
|
|
16,040
|
|
|
(296,111)
|
|
Gain (loss) on
derivative instruments, net
|
|
(88)
|
|
|
(8,143)
|
|
|
(189,691)
|
|
Other, net
|
|
(31)
|
|
|
(45)
|
|
|
461
|
|
Other Income
(Loss)
|
|
55,289
|
|
|
892
|
|
|
(396,155)
|
|
Total
Expenses
|
|
5,392
|
|
|
24,805
|
|
|
4,534
|
|
Income (loss) before
income taxes
|
|
60,014
|
|
|
(16,837)
|
|
|
(381,948)
|
|
Income tax provision
(benefit)
|
|
205
|
|
|
255
|
|
|
(93)
|
|
Net income
(loss)
|
|
$
|
59,809
|
|
|
$
|
(17,092)
|
|
|
$
|
(381,855)
|
|
Net income
attributable to non-controlling interest
|
|
2
|
|
|
2
|
|
|
2
|
|
Net income (loss)
attributable to common stockholders and
participating securities
|
|
$
|
59,807
|
|
|
$
|
(17,094)
|
|
|
$
|
(381,857)
|
|
|
|
|
|
|
|
|
Net income (loss) per
Common Share – Basic/Diluted
|
|
$
|
0.98
|
|
|
$
|
(0.31)
|
|
|
$
|
(7.15)
|
|
Non-GAAP
Results
|
|
|
|
|
|
|
Core earnings plus
drop income (1)
|
|
$
|
6,391
|
|
|
$
|
4,343
|
|
|
$
|
15,779
|
|
Core earnings plus
drop income per Common Share –
Basic/Diluted(1)
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
|
$
|
0.29
|
|
Weighted average
yield(2)(4)
|
|
5.51
|
%
|
|
5.40
|
%
|
|
4.90
|
%
|
Effective cost of
funds(3)(4)
|
|
3.94
|
%
|
|
3.98
|
%
|
|
3.28
|
%
|
Annualized net
interest margin(2)(3)(4)
|
|
2.27
|
%
|
|
1.63
|
%
|
|
1.84
|
%
|
|
|
(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.
|
(3)
|
Includes the net
amount paid, including accrued amounts for interest rate swaps and
premium amortization for MAC interest rate swaps during the
periods.
|
(4)
|
Excludes the
consolidation of VIE trusts required under GAAP.
|
(5)
|
The summary of
operating results for the three months ended June 30, 2020 was
revised to reflect the under accrual of interest expense in the
amount of $1.5 million.
|
Portfolio Composition
As of September 30, 2020, the Company owned an aggregate
investment portfolio with a fair market value totaling $3.4 billion. The following tables sets forth
additional information regarding the Company's investment portfolio
as of September 30, 2020:
Portfolio Characteristics
Credit Sensitive Portfolio
The Company's Non-QM residential portfolio, in our view, is
performing well, given the challenging economic background.
The loans in a forbearance plan at the end of September 2020 represented approximately 10.2% of
the total outstanding loans. We see this as a strong
indication that borrowers with meaningful equity in their homes
will prioritize their mortgage payment in order to remain current
on that obligation.
The Company's Commercial Loans and Non-Agency CMBS portfolios
are performing in line with expectations under the current pandemic
conditions. The large loan Non-Agency CMBS portfolio has an
original LTV of 60.1% and despite being concentrated in retail and
hotel assets, over 82.1% of the loans by principal balance remain
current. All the borrowers of the delinquent loans in the
Non-Agency CMBS portfolio are in negotiations for forbearance and
modifications. The Company believes there is a reasonable
likelihood that the majority of the delinquent loans will return to
performing status in the coming months although there is no
assurance that this will be the case. The Commercial Loan
portfolio carries a 65.5% original LTV and all but one of the loans
remains current. The delinquent loan has a principal balance of
$30.0 million, which is secured by a
hotel and the Company has been unable to come to terms with the
borrower on a loan modification. The Company is currently exploring
various workout strategies and believes there is a reasonable
likelihood that the majority of the principal and missed interest
payments will be recovered, although there is no assurance.
The following table summarizes certain characteristics of our
credit sensitive portfolio by investment category as of
September 30, 2020 (dollars in thousands):
|
Principal Balance
|
|
Amortized Cost
|
|
Fair
Value
|
|
Weighted
Average Coupon(1)
|
Non-Agency
RMBS
|
$
|
38,447
|
|
|
$
|
23,429
|
|
|
$
|
21,568
|
|
|
4.5
|
%
|
Non-Agency RMBS IOs
and IIOs
|
N/A
|
|
|
6,530
|
|
|
4,248
|
|
|
0.5
|
%
|
Non-Agency
CMBS
|
256,450
|
|
|
230,392
|
|
|
181,321
|
|
|
5.2
|
%
|
Residential Whole
Loans
|
1,073,648
|
|
|
1,097,897
|
|
|
1,096,997
|
|
|
5.1
|
%
|
Residential Bridge
Loans(1),(2)
|
18,973
|
|
|
18,967
|
|
|
17,841
|
|
|
9.4
|
%
|
Securitized
Commercial Loans
|
1,878,198
|
|
|
1,737,792
|
|
|
1,687,545
|
|
|
4.1
|
%
|
Commercial
Loans
|
332,518
|
|
|
332,362
|
|
|
325,651
|
|
|
6.3
|
%
|
Other
Securities
|
51,586
|
|
|
50,417
|
|
|
41,055
|
|
|
4.4
|
%
|
|
$
|
3,649,820
|
|
|
$
|
3,497,786
|
|
|
$
|
3,376,226
|
|
|
4.3
|
%
|
|
|
(1)
|
Includes Residential
Bridge Loans carried at amortized cost of $1.5 million as of
September 30, 2020. The fair value of these loans was $1.5
million as of September 30, 2020.
|
(2)
|
As of
September 30, 2020, the Company had real estate owned ("REO")
properties with an aggregate carrying value of $1.3 million related
to foreclosed Bridge Loans. The REO properties are classified in
"Other assets" in the Consolidated Balance Sheets.
|
Agency Portfolio
The following table summarizes certain characteristics of our
Agency portfolio by investment category as of September 30,
2020 (dollars in thousands):
|
Principal Balance
|
|
Amortized Cost
|
|
Fair Value
|
|
Net Weighted
Average Coupon
|
Agency RMBS
Interest-Only Strips
|
N/A
|
|
|
$
|
105
|
|
|
$
|
153
|
|
|
2.4
|
%
|
Agency RMBS
Interest-Only Strips,
accounted for as derivatives
|
N/A
|
|
|
N/A
|
|
|
1,700
|
|
|
3.0
|
%
|
Total Agency
RMBS
|
—
|
|
|
105
|
|
|
1,853
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
105
|
|
|
$
|
1,853
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PORTFOLIO FINANCING AND HEDGING
Financing Activity
Repurchase Agreements
The Company continued to improve its balance sheet by reducing
debt and leverage, increasing liquidity and shareholder equity.
Residential Whole Loan Facility
On April 21, 2020, the Company
entered into amendments with respect to certain of its residential
whole loan facilities. These amendments mainly served to
convert an existing residential whole loan facility into a term
facility by removing any mark to market margin requirements, and to
consolidate the Company's Non-Qualified Mortgage loans, which were
previously financed by three separate, unaffiliated counterparties,
into a single facility. The target advance rate under the amended
and restated facility was approximately 84% of the aggregate unpaid
principal balance of the loans. The facility's scheduled maturity
was October 20, 2021. All principal
payments and income generated by the loans during the term of the
facility were used to pay principal and interest on the facility.
Upon the securitization or sale by the Company of any whole loan
subject to this amended and restated facility, the counterparty was
entitled to receive a 30% premium recapture fee of all realized
value on any whole loans above such counterparty's amortized basis
as well as an exit fee of 0.50% of the loan amount in circumstances
where the counterparty was not involved in the disposition of the
loans.
As of September 30, 2020 approximately $72.7 million in non-QM loans remained in the
facility with a borrowing amount of $20.8
million. As of that date the Company owed the
counterparty $20.5 million as a
premium recapture fee.
On October 6, 2020 the Company
entered into an amendment with respect to its residential whole
loan facility. The amendment serves to convert the
existing residential loan facility to a limited mark to market
margin facility that bears an interest rate of LIBOR plus
2.75%, with a LIBOR floor of 0.25%. The target advance rate under
the amended facility is 85% and the facility matures on
October 5, 2021. The premium
recapture fee was eliminated for holdings that had not yet been
sold or otherwise disposed of.
Non-Agency CMBS and Non-Agency RMBS Facility
On May 4, 2020, the Company
supplemented one of its existing securities repurchase facilities
to consolidate most of its CMBS and RMBS assets, which were
financed by multiple counterparties, into a single term facility
with limited mark to market margin requirements. Pursuant to the
agreement, a margin deficit will not occur until such time as the
loan to value ratio surpasses a certain threshold (the "LTV
Trigger"), on a weighted average basis per asset type, calculated
on a portfolio level. If this threshold is reached, the Company may
elect to provide cash margin or sell certain assets to the extent
necessary to lower the ratio. The term of this facility is 12
months, subject to 12 month extensions at the counterparty's
option. All interest income generated by the assets during the term
of the facility will be paid to the Company no less often than
monthly. Interest on the facility is due from the Company at a rate
of three-month LIBOR plus 5.0% payable quarterly in arrears. Half
of all principal repayments on the underlying assets will be
applied to repay the obligations owed to the counterparty, with the
remainder paid to the Company, unless the LTV Trigger has occurred,
in which case all principal payments will be applied to repay the
obligations. As of September 30, 2020, the Company
had borrowed $102.7 million under
this facility.
The following table sets forth additional information
regarding the Company's portfolio financing arrangements as of
September 30, 2020 (dollars in thousands):
|
|
Outstanding
Borrowings
|
|
Weighted
Average
Interest Rate
|
|
Weighted
Average
Remaining Days to
Maturity
|
Short Term
Borrowings:
|
|
|
|
|
|
|
Agency
RMBS
|
|
$
|
1,438
|
|
|
1.46
|
%
|
|
59
|
Non-Agency
CMBS
|
|
9,119
|
|
|
3.28
|
%
|
|
13
|
Residential
Whole-Loans
|
|
19,215
|
|
|
4.72
|
%
|
|
23
|
Residential Bridge
Loans
|
|
15,763
|
|
|
2.75
|
%
|
|
36
|
Commercial
Loans
|
|
36,575
|
|
|
3.34
|
%
|
|
77
|
Membership
Interest
|
|
18,845
|
|
|
2.90
|
%
|
|
29
|
Other
Securities
|
|
2,599
|
|
|
4.50
|
%
|
|
21
|
Subtotal
|
|
103,554
|
|
|
3.42
|
%
|
|
45
|
Long Term
Borrowings
|
|
|
|
|
|
|
Non-Agency
CMBS
|
|
74,145
|
|
|
5.25
|
%
|
|
218
|
Non-Agency
RMBS
|
|
14,742
|
|
|
5.25
|
%
|
|
218
|
Residential
Whole-Loans (1)
|
|
20,846
|
|
|
5.22
|
%
|
|
386
|
Commercial Loans
(1)
|
|
131,822
|
|
|
2.20
|
%
|
|
377
|
Other
Securities
|
|
13,769
|
|
|
5.25
|
%
|
|
218
|
Subtotal
|
|
255,324
|
|
|
3.67
|
%
|
|
314
|
Repurchase Agreements
Borrowings
|
|
$
|
358,878
|
|
|
3.60
|
%
|
|
236
|
Less Unamortized Debt
Issuance Costs
|
|
353
|
|
|
N/A
|
|
|
N/A
|
Repurchase Agreements
Borrowings, net
|
|
$
|
358,525
|
|
|
3.60
|
%
|
|
236
|
|
|
(1)
|
Certain Residential
Whole Loans and Commercial Loans were financed under two longer
term repurchase agreements. The Residential Whole facility is
18 months and the Commercial Loan facility automatically rolls
until such time as they are terminated or until certain conditions
of default. The weighted average remaining maturity days was
calculated using expected weighted life of the underlying
collateral.
|
Certain of the financing arrangements provide the counterparty
with the right to terminate the agreement if the Company does not
maintain certain equity and leverage metrics, the most restrictive
of which include a limit on leverage based on the composition of
the Company's portfolio. For all the repurchase agreements with
outstanding borrowings, the Company was in compliance with the
terms of such financial tests as of September 30, 2020.
Convertible Senior Unsecured Notes
At September 30, 2020, the Company had $200 million aggregate principal amount of 6.75%
convertible senior unsecured notes outstanding. 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 initial conversion rate
was 83.1947 shares of common stock per $1,000 principal amount of notes and represented
a conversion price of $12.02 per
share of common stock.
Residential Mortgage-Backed Notes
The Company has completed two Residential Whole Loan
securitizations. The mortgage-backed notes issued are non-recourse
to the Company and effectively finance $1.0
billion of Residential Whole Loans.
Arroyo 2019-2
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2019-2 securitization trust at
September 30, 2020 (dollars in thousands):
Classes
|
Principal
Balance
|
Coupon
|
Carrying
Value
|
Contractual
Maturity
|
Offered
Notes:
|
|
|
|
|
Class A-1
|
$
|
552,779
|
|
3.3%
|
$
|
552,777
|
|
4/25/2049
|
Class A-2
|
29,619
|
|
3.5%
|
29,618
|
|
4/25/2049
|
Class A-3
|
46,925
|
|
3.8%
|
46,924
|
|
4/25/2049
|
Class M-1
|
25,055
|
|
4.8%
|
25,055
|
|
4/25/2049
|
|
654,378
|
|
|
654,374
|
|
|
Less: Unamortized
Deferred Financing
Cost
|
N/A
|
|
|
4,625
|
|
|
Total
|
$
|
654,378
|
|
|
$
|
649,749
|
|
|
The Company retained the subordinate bonds and these bonds had a
fair market value of $43.7 million at
September 30, 2020. The retained Arroyo 2019-2 subordinate
bonds are eliminated in consolidation.
Arroyo 2020-1
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2020-1 securitization trust at
September 30, 2020 (dollars in thousands):
Classes
|
Principal Balance
|
Coupon
|
Carrying
Value
|
Contractual
Maturity
|
Offered
Notes:
|
|
|
|
|
Class A-1A
|
$
|
246,807
|
|
1.7%
|
$
|
246,801
|
|
3/25/2055
|
Class A-1B
|
29,287
|
|
2.1%
|
29,286
|
|
3/25/2055
|
Class A-2
|
13,518
|
|
2.9%
|
13,517
|
|
3/25/2055
|
Class A-3
|
17,963
|
|
3.3%
|
17,963
|
|
3/25/2055
|
Class M-1
|
11,739
|
|
4.3%
|
11,739
|
|
3/25/2055
|
Subtotal
|
319,314
|
|
|
319,306
|
|
|
Less: Unamortized
Deferred Financing
Costs
|
N/A
|
|
|
2,606
|
|
|
Total
|
$
|
319,314
|
|
|
$
|
316,700
|
|
|
The Company retained the subordinate bonds and these bonds had a
fair market value of $29.5 million at
September 30, 2020. The retained Arroyo 2020-1 subordinate
bonds are eliminated in consolidation.
Commercial Mortgage-Backed Notes
RETL 2019 Trust
The following table summarizes RETL 2019 Trust's commercial
mortgage pass-through certificates at September 30, 2020
(dollars in thousands), which is non-recourse to the Company:
Classes
|
Principal Balance
|
Coupon
|
Fair
Value
|
Contractual
Maturity
|
Class A
|
$
|
34,022
|
|
1.3%
|
$
|
34,024
|
|
3/15/2021
|
Class B
|
101,200
|
|
1.7%
|
96,085
|
|
3/15/2021
|
Class C
|
308,400
|
|
2.3%
|
282,831
|
|
3/15/2021
|
Class
X-EXT(1)
|
N/A
|
|
1.2%
|
31
|
|
3/15/2021
|
|
$
|
443,622
|
|
|
$
|
412,971
|
|
|
|
|
(1)
|
Class X-EXT is an
interest-only class with an initial notional balance of $308.4
million.
|
The above table does not reflect the class HRR bond held by the
Company because the bond is eliminated in consolidation. The bond
had a fair market value of $41.7
million at September 30,
2020.
CSMC 2014 USA
The following table summarizes CSMC 2014 USA's commercial
mortgage pass-through certificates at September 30, 2020
(dollars in thousands), which is non-recourse to the Company:
Classes
|
Principal
Balance
|
Coupon
|
Fair
Value
|
Contractual
Maturity
|
Class A-1
|
$
|
124,076
|
|
3.3%
|
$
|
124,648
|
|
9/11/2025
|
Class A-2
|
531,700
|
|
4.0%
|
541,905
|
|
3/15/2021
|
Class B
|
136,400
|
|
4.2%
|
122,802
|
|
9/11/2025
|
Class C
|
94,500
|
|
4.3%
|
80,348
|
|
9/11/2025
|
Class D
|
153,950
|
|
4.4%
|
117,058
|
|
9/11/2025
|
Class E
|
180,150
|
|
4.4%
|
122,585
|
|
9/11/2025
|
Class F
|
153,600
|
|
4.4%
|
96,808
|
|
9/11/2025
|
Class
X-1(1)
|
n/a
|
|
0.5%
|
14,638
|
|
9/11/2025
|
Class
X-2(1)
|
n/a
|
|
0.4%
|
2,697
|
|
9/11/2025
|
|
$
|
1,374,376
|
|
|
$
|
1,223,489
|
|
|
|
|
(1)
|
Class X-1 and X-2 are
interest-only classes with notional balances of $655.8 million and
$733.5 million as of September 30, 2020,
respectively.
|
The above table does not reflect the portion of the class F bond
held by the Company because the bond is eliminated in
consolidation. The Company's ownership interest in the F
bonds represents a controlling financial interest, which resulted
in consolidation of the trust, during the quarter. The bond had a
fair market value of $9.4 million at
September 30, 2020.
Derivatives Activity
The following table summarizes the Company's derivative
instruments at September 30, 2020 (dollars in thousands):
Other
Derivative Instruments
|
|
Notional
Amount
|
|
Fair
Value
|
Credit default swaps,
asset
|
|
$
|
2,030
|
|
|
$
|
481
|
|
Total derivative
instruments, assets
|
|
|
|
481
|
|
|
|
|
|
|
Credit default swaps,
liability
|
|
4,140
|
|
|
(1,166)
|
|
Total derivative
instruments, liabilities
|
|
|
|
(1,166)
|
|
Total derivative
instruments, net
|
|
|
|
$
|
(685)
|
|
DIVIDEND
As previously announced, due to the turmoil in the financial
markets resulting from the COVID-19 pandemic, we suspended the
first and second quarter dividend to preserve liquidity. In the
third quarter of 2020, we resumed our quarterly dividend after
making progress strengthening our balance sheet and improving
liquidity and the earnings power of our investment portfolio. For
the quarter ended September 30, 2020,
we declared a cash dividend of $0.05
per share generating a dividend yield of approximately 9.8% based
on the stock closing price of $2.04
at September 30, 2020.
CONFERENCE CALL
The Company will host a conference call with a live webcast
tomorrow, November 6, 2020 at 11:00 a.m. Eastern
Time/8:00 a.m. Pacific Time, to discuss financial results for
the third quarter 2020.
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/10148851 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 November 20, 2020 by dialing (877) 344-7529 from
the United States, or (412)
317-0088 from outside the United
States, and entering conference ID 10148851. 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 of assets consisting of Residential Whole Loans,
Commercial Loans, Non-Agency CMBS, Non-Agency RMBS, GSE Risk
Transfer Securities and to a lesser extent Agency RMBS, Agency CMBS
and ABS. 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, LLC'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, LLC, an investment advisor registered with the Securities
and Exchange Commission and a wholly-owned subsidiary of Franklin
Resources, Inc. Please visit the Company's website at
www.westernassetmcc.com.
FORWARD-LOOKING STATEMENTS
The press release contains statements that may constitute
"forward-looking statements" For these statements, the Company
claims the protections of the safe harbor for forward-looking
statements contained in such sections. Forward-looking
statements are subject to substantial risks and uncertainties, many
of which are difficult to predict and are generally beyond the
Company's control. In particular, it is difficult to fully assess
the impact of COVID-19 at this time due to, among other factors,
uncertainty regarding the severity and duration of the outbreak
domestically and internationally and the effectiveness of federal,
state and local governments' efforts to contain the spread of
COVID-19 and respond to its direct and indirect impact on the U.S.
economy and economic activity. Other factors are described in Risk
Factors section of the Company's annual report on Form 10-K
for the period ended December 31, 2019 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, economic book value 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 margin,
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.
-Financial Tables to Follow-
Western Asset
Mortgage Capital Corporation and Subsidiaries
|
Consolidated
Balance Sheets
|
(in
thousands—except share and per share data)
|
(Unaudited)
|
|
|
|
September 30,
2020
|
|
June 30, 2020
(Revised)(1)
|
Assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
27,459
|
|
|
$
|
19,363
|
|
Restricted
cash
|
|
95,579
|
|
|
26,430
|
|
Agency mortgage-backed
securities, at fair value ($1,853 and $1,975 pledged as collateral,
at fair value, respectively)
|
|
1,853
|
|
|
1,975
|
|
Non-Agency
mortgage-backed securities, at fair value ($182,125 and $197,326
pledged as collateral, at fair value, respectively)
|
|
207,137
|
|
|
216,288
|
|
Other securities, at
fair value ($41,055 and $40,466 pledged as collateral, at fair
value, respectively)
|
|
41,055
|
|
|
40,466
|
|
Residential Whole
Loans, at fair value ($1,096,997 and $1,124,051 pledged as
collateral, at fair value, respectively)
|
|
1,096,997
|
|
|
1,124,051
|
|
Residential Bridge
Loans ($16,333 and $24,171 at fair value and $17,653 and $25,371
pledged as collateral, respectively)
|
|
17,841
|
|
|
26,505
|
|
Securitized commercial
loans, at fair value
|
|
1,687,545
|
|
|
465,694
|
|
Commercial Loans, at
fair value (325,651 and $323,474 pledged as collateral, at fair
value, respectively)
|
|
325,651
|
|
|
323,474
|
|
Receivable under
reverse repurchase agreements
|
|
—
|
|
|
—
|
|
Investment related
receivable
|
|
18,861
|
|
|
12,029
|
|
Interest
receivable
|
|
14,101
|
|
|
11,595
|
|
Due from
counterparties
|
|
1,192
|
|
|
5,177
|
|
Derivative assets, at
fair value
|
|
481
|
|
|
714
|
|
Other
assets
|
|
4,418
|
|
|
6,262
|
|
Total Assets
(1)
|
|
$
|
3,540,170
|
|
|
$
|
2,280,023
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity:
|
|
|
|
|
Liabilities:
|
|
|
|
|
Repurchase agreements,
net
|
|
$
|
358,525
|
|
|
$
|
369,096
|
|
Convertible senior
unsecured notes, net
|
|
194,510
|
|
|
198,669
|
|
Securitized debt, net
($1,636,460 and $424,217 at fair value and $207,852 and $43,904
held by affiliates, respectively)
|
|
2,602,909
|
|
|
1,458,236
|
|
Interest payable
(includes $660 and $49 on securitized debt held by affiliates,
respectively)
|
|
8,840
|
|
|
9,169
|
|
Due to
counterparties
|
|
17
|
|
|
16
|
|
Derivative liability,
at fair value
|
|
1,166
|
|
|
943
|
|
Accounts payable and
accrued expenses
|
|
3,992
|
|
|
4,082
|
|
Payable to
affiliate
|
|
3,255
|
|
|
4,701
|
|
Dividend
payable
|
|
3,041
|
|
|
—
|
|
Other
liabilities
|
|
116,124
|
|
|
47,856
|
|
Total Liabilities
(2)
|
|
3,292,379
|
|
|
2,092,768
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
Common stock: $0.01
par value, 500,000,000 shares authorized, 60,812,701 and 59,458,617
outstanding, respectively
|
|
609
|
|
|
595
|
|
Preferred stock, $0.01
par value, 100,000,000 shares authorized and no shares
outstanding
|
|
—
|
|
|
—
|
|
Treasury stock, at
cost, 100,000 and 0 shares held, respectively
|
|
(578)
|
|
|
(578)
|
|
Additional paid-in
capital
|
|
915,258
|
|
|
911,488
|
|
Retained earnings
(accumulated deficit)
|
|
(667,500)
|
|
|
(724,252)
|
|
Total Stockholders'
Equity
|
|
247,789
|
|
|
187,253
|
|
Non-controlling
interest
|
|
2
|
|
|
2
|
|
Total
Equity
|
|
247,791
|
|
|
187,255
|
|
Total Liabilities and
Equity
|
|
$
|
3,540,170
|
|
|
$
|
2,280,023
|
|
Western Asset
Mortgage Capital Corporation and Subsidiaries
|
Consolidated
Balance Sheets (Continued)
|
(in
thousands—except share and per share data)
|
(Unaudited)
|
|
|
|
September 30,
2020
|
|
June 30,
2020 (Revised)(1)
|
(1) Assets of consolidated VIEs
included in the total assets above:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted
Cash
|
|
95,579
|
|
|
26,430
|
|
Residential Whole
Loans, at fair value ($1,096,997 and $1,124,051 pledged as
collateral, at fair value, respectively)
|
|
1,096,997
|
|
|
1,124,051
|
|
Residential Bridge
Loans ($15,319 and $23,307 at fair value and $16,828 and $25,371
pledged as collateral, respectively)
|
|
16,828
|
|
|
25,371
|
|
Securitized commercial
loans, at fair value
|
|
1,687,545
|
|
|
465,694
|
|
Commercial Loans, at
fair value ($72,699 and $72,335 pledged as collateral, at fair
value, respectively)
|
|
72,699
|
|
|
72,335
|
|
Investment related
receivable
|
|
18,817
|
|
|
12,029
|
|
Interest
receivable
|
|
11,287
|
|
|
8,640
|
|
Other
assets
|
|
92
|
|
|
92
|
|
Total assets of
consolidated VIEs
|
|
$
|
2,999,844
|
|
|
$
|
1,734,642
|
|
|
|
|
|
|
(2) Liabilities of consolidated VIEs
included in the total liabilities above:
|
|
|
|
|
Securitized debt, net
($1,636,460 and $765,945 at fair value and $207,852 and $43,904
held by affiliates, respectively)
|
|
$
|
2,602,909
|
|
|
$
|
1,458,236
|
|
Interest payable
(includes $660 and $49 on securitized debt held by affiliates,
respectively)
|
|
7,681
|
|
|
4,603
|
|
Accounts payable and
accrued expenses
|
|
410
|
|
|
118
|
|
Other
liabilities
|
|
95,579
|
|
|
26,430
|
|
Total liabilities of
consolidated VIEs
|
|
$
|
2,706,579
|
|
|
$
|
1,489,387
|
|
|
|
(1)
|
The consolidated
balance sheet as June 30, 2020 was revised to reflect the under
accrual of interest expense in the amount of $1.5
million.
|
Western Asset
Mortgage Capital Corporation and Subsidiaries
|
Consolidated
Statements of Operations
|
(in
thousands—except share and per share data)
|
(Unaudited)
|
|
|
|
Three months
ended
|
|
|
September 30,
2020
|
|
June 30, 2020
(Revised)(1)
|
|
March 31,
2020
|
Net Interest
Income
|
|
|
|
|
|
|
Interest
income
|
|
$
|
43,970
|
|
|
$
|
31,494
|
|
|
$
|
54,846
|
|
Interest expense
(includes $2,647, $392 and $2,164 on securitized debt held by
affiliates, respectively)
|
|
33,853
|
|
|
24,418
|
|
|
36,105
|
|
Net Interest
Income
|
|
10,117
|
|
|
7,076
|
|
|
18,741
|
|
|
|
|
|
|
|
|
Other Income
(Loss)
|
|
|
|
|
|
|
Realized gain (loss)
on sale of investments, net
|
|
718
|
|
|
(6,960)
|
|
|
89,186
|
|
Unrealized gain
(loss), net
|
|
54,690
|
|
|
16,040
|
|
|
(296,111)
|
|
Gain (loss) on
derivative instruments, net
|
|
(88)
|
|
|
(8,143)
|
|
|
(189,691)
|
|
Other, net
|
|
(31)
|
|
|
(45)
|
|
|
461
|
|
Other Income
(Loss)
|
|
55,289
|
|
|
892
|
|
|
(396,155)
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Management fee to
affiliate
|
|
1,513
|
|
|
464
|
|
|
1,039
|
|
Financing
fee
|
|
—
|
|
|
20,540
|
|
|
—
|
|
Other operating
expenses
|
|
1,198
|
|
|
796
|
|
|
1,000
|
|
General and
administrative expenses:
|
|
|
|
|
|
|
Compensation
expense
|
|
716
|
|
|
692
|
|
|
662
|
|
Professional
fees
|
|
827
|
|
|
1,541
|
|
|
1,480
|
|
Other general
and administrative expenses
|
|
1,138
|
|
|
772
|
|
|
353
|
|
Total general and
administrative expenses
|
|
2,681
|
|
|
3,005
|
|
|
2,495
|
|
Total
Expenses
|
|
5,392
|
|
|
24,805
|
|
|
4,534
|
|
|
|
|
|
|
|
|
Income before
income taxes
|
|
60,014
|
|
|
(16,837)
|
|
|
(381,948)
|
|
Income tax provision
(benefit)
|
|
205
|
|
|
255
|
|
|
(93)
|
|
Net income
(loss)
|
|
59,809
|
|
|
(17,092)
|
|
|
(381,855)
|
|
Net income
attributable to non-controlling interest
|
|
2
|
|
|
2
|
|
|
2
|
|
Net income (loss)
attributable to common stockholders and participating
securities
|
|
$
|
59,807
|
|
|
$
|
(17,094)
|
|
|
$
|
(381,857)
|
|
|
|
|
|
|
|
|
Net income (loss) per
Common Share – Basic
|
|
$
|
0.98
|
|
|
$
|
(0.31)
|
|
|
$
|
(7.15)
|
|
Net income (loss) per
Common Share – Diluted
|
|
$
|
0.98
|
|
|
$
|
(0.31)
|
|
|
$
|
(7.15)
|
|
|
|
(1)
|
The consolidated
statements of operations for the three months ended June 30, 2020
was revised to reflect the under accrual of interest expense in the
amount of $1.5 million.
|
Reconciliation of
GAAP Net Income to Non-GAAP Core Earnings
|
(in
thousands—except share and per share data)
|
(Unaudited)
|
|
The table below
reconciles Net Income to Core Earnings for the three months ended
September 30, 2020, June 30, 2020 and March 31,
2020:
|
|
|
|
Three months
ended
|
(dollars in
thousands)
|
|
September 30,
2020
|
|
June 30, 2020
(Revised)(1)
|
|
March 31,
2020
|
Net Income (loss)
attributable to common stockholders and participating
securities
|
|
$
|
59,807
|
|
|
$
|
(17,094)
|
|
|
$
|
(381,857)
|
|
Income tax provision
(benefit)
|
|
205
|
|
|
255
|
|
|
(93)
|
|
Net Income before
income taxes
|
|
60,012
|
|
|
(16,839)
|
|
|
(381,950)
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
Unrealized (gain)
loss on investments, securitized debt and other
liabilities
|
|
(54,690)
|
|
|
(16,040)
|
|
|
296,111
|
|
Realized (gain) loss
on sale of investments
|
|
(718)
|
|
|
6,960
|
|
|
(89,186)
|
|
One-time transaction
costs
|
|
57
|
|
|
20,652
|
|
|
280
|
|
|
|
|
|
|
|
|
Derivative
Instruments:
|
|
|
|
|
|
|
Net realized (gain)
loss on derivatives
|
|
(154)
|
|
|
13,152
|
|
|
180,156
|
|
Net unrealized (gain)
loss on derivatives
|
|
288
|
|
|
(4,973)
|
|
|
8,807
|
|
|
|
|
|
|
|
|
Amortization of
discount on convertible senior unsecured notes
|
|
284
|
|
|
273
|
|
|
273
|
|
Other non-cash
adjustments
|
|
1,130
|
|
|
988
|
|
|
—
|
|
Non-cash stock-based
compensation
|
|
182
|
|
|
170
|
|
|
165
|
|
Total
adjustments
|
|
(53,621)
|
|
|
21,182
|
|
|
396,606
|
|
Core
Earnings
|
|
$
|
6,391
|
|
|
$
|
4,343
|
|
|
$
|
14,656
|
|
Basic and Diluted
Core Earnings per Common Share and Participating
Securities
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
|
$
|
0.27
|
|
Basic and Diluted
Core Earnings plus Drop Income per Common Share and Participating
Securities
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
|
$
|
0.29
|
|
Basic weighted
average common shares and participating securities
|
|
61,101,485
|
|
|
54,921,847
|
|
|
53,670,550
|
|
Diluted weighted
average common shares and participating securities
|
|
61,101,485
|
|
|
54,921,847
|
|
|
53,670,550
|
|
|
|
(1)
|
The reconciliation of
GAAP Net Income to Non-GAAP Core Earnings for the three months
ended June 30, 2020 was revised to reflect the under accrual of
interest expense in the amount of $1.5 million.
|
Alternatively, our Core Earnings can also be derived as
presented in the table below by starting net interest income adding
interest income on Interest-Only Strips accounted for as
derivatives and other derivatives, and net interest expense
incurred on interest rate swaps and foreign currency swaps and
forwards (a Non-GAAP financial measure) to arrive at adjusted net
interest income. Then subtracting total expenses, adding non-cash
stock based compensation, adding one-time transaction costs, adding
amortization of discount on convertible senior notes and adding
interest income on cash balances and other income (loss), net:
|
|
Three months
ended
|
(dollars in thousands)
|
|
September 30,
2020
|
|
June 30, 2020
(Revised)(1)
|
|
March 31,
2020
|
Net interest
income
|
|
$
|
10,117
|
|
|
$
|
7,076
|
|
|
$
|
18,741
|
|
Interest income from
IOs and IIOs accounted for as derivatives
|
|
34
|
|
|
69
|
|
|
91
|
|
Net interest income
from interest rate swaps
|
|
—
|
|
|
—
|
|
|
(1,133)
|
|
Adjusted net interest
income
|
|
10,151
|
|
|
7,145
|
|
|
17,699
|
|
Total
expenses
|
|
(5,392)
|
|
|
(24,805)
|
|
|
(4,534)
|
|
Other non-cash
adjustments
|
|
1,130
|
|
|
988
|
|
|
—
|
|
Non-cash stock-based
compensation
|
|
182
|
|
|
170
|
|
|
165
|
|
One-time transaction
costs
|
|
57
|
|
|
20,652
|
|
|
280
|
|
Amortization of
discount on convertible unsecured senior notes
|
|
284
|
|
|
273
|
|
|
273
|
|
Interest income on
cash balances and other income (loss), net
|
|
(19)
|
|
|
(78)
|
|
|
775
|
|
Income attributable
to non-controlling interest
|
|
(2)
|
|
|
(2)
|
|
|
(2)
|
|
Core
Earnings
|
|
$
|
6,391
|
|
|
$
|
4,343
|
|
|
$
|
14,656
|
|
|
|
(1)
|
The reconciliation of
GAAP Net Income to Non-GAAP Core Earnings for the three months
ended June 30, 2020 was revised to reflect the under accrual of
interest expense in the amount of $1.5 million.
|
Reconciliation of
GAAP Book Value to Non-GAAP Economic Book Value
|
(dollars in
thousands)
|
(Unaudited)
|
|
|
|
September 30,
2020
|
|
June 30,
2020 (Revised)(1)
|
|
|
$
Amount
|
|
Per
Share
|
|
$
Amount
|
|
Per
Share
|
GAAP Book Value at
June 30, 2020 and March 31, 2020
|
|
$
|
187,253
|
|
|
$
|
3.15
|
|
|
$
|
182,191
|
|
|
$
|
3.41
|
|
Debt to equity
exchange of the convertible senior notes
|
|
3,588
|
|
|
(0.01)
|
|
|
|
|
—
|
|
Proceeds from
At-the-Market program, net
|
|
—
|
|
|
—
|
|
|
21,986
|
|
|
0.02
|
|
Common
dividend
|
|
(3,041)
|
|
|
(0.05)
|
|
|
—
|
|
|
—
|
|
|
|
187,800
|
|
|
3.09
|
|
|
204,177
|
|
|
3.43
|
|
Portfolio
Income
|
|
|
|
|
|
|
|
|
Net Interest
Margin
|
|
10,120
|
|
|
0.16
|
|
|
7,098
|
|
|
0.12
|
|
Realized gain (loss),
net
|
|
(374)
|
|
|
(0.01)
|
|
|
(20,147)
|
|
|
(0.34)
|
|
Net realized gain
(loss) on debt extinguishment
|
|
1,258
|
|
|
0.02
|
|
|
—
|
|
|
—
|
|
Unrealized gain
(loss), net
|
|
54,399
|
|
|
0.89
|
|
|
21,016
|
|
|
0.36
|
|
Net portfolio
income
|
|
65,403
|
|
|
1.06
|
|
|
7,967
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
Financing
fee
|
|
—
|
|
|
—
|
|
|
(20,540)
|
|
|
(0.35)
|
|
Operating
expenses
|
|
(2,711)
|
|
|
(0.04)
|
|
|
(1,260)
|
|
|
(0.02)
|
|
General and
administrative expenses, excluding equity based
compensation
|
|
(2,498)
|
|
|
(0.04)
|
|
|
(2,836)
|
|
|
(0.05)
|
|
Provision for
taxes
|
|
(205)
|
|
|
—
|
|
|
(255)
|
|
|
—
|
|
GAAP Book Value at
September 30, 2020 and June 30, 2020
|
|
$
|
247,789
|
|
|
$
|
4.07
|
|
|
$
|
187,253
|
|
|
$
|
3.15
|
|
|
|
|
|
|
|
|
|
|
Adjustments to
deconsolidate VIEs and reflect the Company's interest in the
securities owned
|
|
|
Deconsolidation of
VIEs assets
|
|
(2,827,360)
|
|
|
(46.48)
|
|
|
(1,555,962)
|
|
|
(26.17)
|
|
Deconsolidation VIEs
liabilities
|
|
2,705,246
|
|
|
44.48
|
|
|
1,486,107
|
|
|
25.00
|
|
Interest in
securities of VIEs owned, at fair value
|
|
124,309
|
|
|
2.04
|
|
|
121,315
|
|
|
2.04
|
|
Economic Book
Value at September 30, 2020 and June 30, 2020
|
|
$
|
249,984
|
|
|
$
|
4.11
|
|
|
$
|
238,713
|
|
|
$
|
4.02
|
|
|
|
(1)
|
The reconciliation of
GAAP Book Value to Non-GAAP Economic Book Value for the three
months ended June 30, 2020 was revised to reflect the under accrual
of interest expense in the amount of $1.5 million.
|
"Economic Book value" is a non-GAAP financial measure of our
financial position on an unconsolidated basis. The Company owns
certain securities that represent a controlling variable interest,
which under GAAP requires consolidation; however, the Company's
economic exposure to these variable interests is limited to the
fair value of the individual investments. Economic book
value is calculated by adjusting the GAAP book value by 1)
adding the fair value of the retained interest or acquired security
of the VIEs (RETL 2019, CSMC USA,
Arroyo 2019-2 and Arroyo 2020-1) held by the Company, which were
priced by independent third party pricing services and 2) removing
the asset and liabilities associated with each of consolidated
trusts (RETL 2019, CSMC 2020, Arroyo 2019-2 and Arroyo 2020-1).
Management believes that economic book value provides investors
with a useful supplemental measure to evaluate our financial
position as it reflects the actual financial interest of these
investments irrespective of the variable interest consolidation
model applied for GAAP reporting purposes. Economic book value does
not represent and should not be considered as a substitute for
Stockholders' Equity, as determined in accordance with GAAP, and
our calculation of this measure may not be comparable to similarly
titled measures reported by other companies.
Reconciliation of
Interest Income and Effective Cost of Funds
|
(dollars in
thousands)
|
(Unaudited)
|
|
The following table
reconciles total interest income to adjusted interest income which
includes interest income on Agency and Non-Agency Interest-Only
Strips classified as derivatives (Non-GAAP financial measure) for
the three months ended September 30, 2020, June 30, 2020 and
March 31, 2020:
|
|
|
|
Three months
ended
|
(dollars in
thousands)
|
|
September 30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
Coupon interest
income
|
|
$
|
40,039
|
|
|
$
|
33,007
|
|
|
$
|
57,761
|
|
Premium amortization,
discount accretion and amortization of basis, net
|
|
3,931
|
|
|
(1,513)
|
|
|
(2,915)
|
|
Interest
income
|
|
43,970
|
|
|
31,494
|
|
|
54,846
|
|
Contractual interest
income, net of amortization of basis on Agency and Non-Agency
Interest-Only Strips, classified as
derivatives(1):
|
|
|
|
|
|
|
Coupon interest
income
|
|
200
|
|
|
340
|
|
|
636
|
|
Amortization of
basis
|
|
(166)
|
|
|
(271)
|
|
|
(545)
|
|
Subtotal
|
|
34
|
|
|
69
|
|
|
91
|
|
Total adjusted
interest income
|
|
$
|
44,004
|
|
|
$
|
31,563
|
|
|
$
|
54,937
|
|
|
|
(1)
|
Reported in "Gain
(loss) on derivative instruments, net" in the Consolidated
Statements of Operations.
|
The following table
reconciles the Effective Cost of Funds (Non-GAAP financial measure)
with interest expense for three months ended September 30,
2020, June 30, 2020 and March 31, 2020:
|
|
|
|
Three months
ended
|
|
|
September 30,
2020
|
|
June 30, 2020
(Revised)(2)
|
|
March 31,
2020
|
(dollars in thousands)
|
|
Reconciliation
|
|
Cost of
Funds/Effective
Borrowing
Costs
|
|
Reconciliation
|
|
Cost of
Funds/Effective
Borrowing
Costs
|
|
Reconciliation
|
|
Cost of
Funds/Effective
Borrowing
Costs
|
Interest
expense
|
|
$
|
33,853
|
|
|
4.80
|
%
|
|
$
|
24,418
|
|
|
3.97
|
%
|
|
$
|
36,105
|
|
|
3.34
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on
Securitized debt
from consolidated VIEs1
|
|
(18,597)
|
|
|
(5.83)
|
%
|
|
(4,661)
|
|
|
(3.92)
|
%
|
|
(6,754)
|
|
|
(4.42)
|
%
|
Net interest
(received) paid - interest
rate swaps
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
1,133
|
|
|
0.10
|
%
|
Effective Borrowing
Costs
|
|
$
|
15,256
|
|
|
3.94
|
%
|
|
$
|
19,757
|
|
|
3.98
|
%
|
|
$
|
30,484
|
|
|
3.28
|
%
|
Weighted average
borrowings
|
|
$
|
1,538,970
|
|
|
|
|
$
|
1,994,405
|
|
|
|
|
$
|
3,733,045
|
|
|
|
|
|
(1)
|
Excludes third-party
sponsored securitized debt interest expense.
|
(2)
|
The reconciliation of
the Effective Cost of Funds for the three months ended June 30,
2020 was revised to reflect the under accrual of interest expense
in the amount of $1.5 million.
|
View original
content:http://www.prnewswire.com/news-releases/western-asset-mortgage-capital-corporation-announces-third-quarter-2020-results-301167560.html
SOURCE Western Asset Mortgage Capital Corporation