Conference Call and Webcast Scheduled for
Tomorrow, Thursday, March 4, 2021 at 11:00 a.m. Eastern Time/8:00
a.m. Pacific Time
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, 2020.
FOURTH QUARTER 2020 FINANCIAL HIGHLIGHTS
- GAAP book value per share of $4.20, increased $0.13 from $4.07
in the third quarter
- GAAP net income of $10.8 million, or $0.18 per basic and
diluted share.
- Core earnings of $7.2 million, or $0.12 per basic and diluted
share.1
- Economic return on book value was 4.7%1,2 for the quarter.
- Economic book value per share of $4.19 increased 1.9% from
$4.11 in the third quarter.1
- 2.11% annualized net interest margin on our investment
portfolio. 1,3,4
- 2.1x recourse leverage as of December 31, 2020.
- On December 17, 2020 we declared a fourth quarter common
dividend of $0.06 per share.
FULL YEAR 2020 HIGHLIGHTS
Our full year financial results reflect the extremely
challenging market conditions resulting from the onset of the
pandemic in March 2020. During these challenging times, the Company
focused on improving its balance sheet by reducing debt and
leverage, increasing liquidity and shareholder equity, and
completing new financing arrangements that significantly reduce the
Company’s exposure to short term repurchase agreements. The
following includes our full year financial results and the measures
taken to strengthen our balance sheet:
- GAAP net loss of $328.3 million, or $5.72 per basic and diluted
share.
- Core earnings of $32.6 million, or $0.57 per basic and diluted
share.1
- Economic return on book value was negative 59.1%1,2 for the
year.
- 1.93% annualized net interest margin on our investment
portfolio. 1,3,4
- In April, we closed an 18 month term financing arrangement
without margin requirements for the entire unsecuritized
Residential Whole Loan portfolio. This financing reduced our
exposure to repurchase agreement financing and eliminated
associated margin calls. In October 2020, we amended the facility
to a limited mark to market facility with a 12 month term bearing
an interest rate of one month LIBOR plus 2.75%.
- In May, we closed a 12 month term financing arrangement, with a
12 month extension at the counterparty’s option, for Non-Agency
RMBS and Non-Agency CMBS, significantly mitigating exposure to
margin volatility.
- Our Manager waived the management fees for March, April and May
2020.
- In June, we completed a securitization of $355.8 million of our
Residential Whole Loan investments, enabling the Company to secure
$341.7 million of long-term financing at a weighted average
interest rate of 2.0%.
- In June, we raised $22.0 million of equity capital through the
sale of 6.0 million shares at a premium to book value through our
At-The-Market Program.
- In July, 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.
- Resumed our quarterly dividend in the third quarter for a total
2020 annual common dividend of $0.11 per share.
- In the fourth quarter of 2020, we repurchased $25.0 million in
aggregate principal amount of our convertible senior unsecured
notes at an average discount of 13% to par value.
1 Non – GAAP measure. 2 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. 3 Includes interest-only securities accounted for as
derivatives and the cost of interest rate swaps. 4 Excludes the
consolidation of VIE trusts required under GAAP.
MANAGEMENT COMMENTARY
“The Company finished the year with positive momentum,
delivering a fourth quarter economic return on book value of 4.7%,
sequentially improved core earnings and a dividend increase to
$0.06 per share,” said Jennifer Murphy, Chief Executive Officer of
the Company. “We have continued to focus on strengthening our
balance sheet, lowering leverage, reducing our exposure to
mark-to-market funding, and improving the earnings power of the
portfolio. We took important actions on these fronts in the fourth
quarter, including extending some of our longer-term financing at
attractive levels and repurchasing $25.0 million of our outstanding
notes at an average discount of 13% to par value. We believe we are
well positioned to benefit from what we anticipate will be the
continued recovery of asset values and improved earnings
sustainability of our portfolio.
Ms. Murphy continued, “We recorded GAAP net income of $10.8
million, or $0.18 per share, and core earnings of $0.12 per share
during the fourth quarter. Core earnings improved from $0.10 per
share in the third quarter, reflecting lower operating expenses,
partially offset by slightly lower portfolio leverage and net
interest margin. Our GAAP book value per share increased 3.2%
during the quarter to $4.20 per share and has increased by 32.5%
since June 30, 2020, when it reached its low, after the onset of
the pandemic. Our commitment to shareholders remains protecting and
growing 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 and enhancing value
for our shareholders,” Ms. Murphy concluded.
Greg Handler, Interim Co-Chief Investment Officer of the
Company, commented, “The equity and credit markets continued to
rebound in the fourth quarter, driven by improved liquidity
conditions across financial markets, the optimism resulting from
the roll-out of vaccines and the potential for a new government
stimulus package. This translated into higher valuations on a
number of our portfolio holdings and an improvement in our book
value. Our view remains that the economy will continue to gradually
improve, although the timing and strength of that recovery remain
dependent on the future course of the pandemic as well as fiscal
and monetary stimulus. We have invested in assets we believe are
high quality and with borrowers who have resources to be more
resilient in a protracted downturn. In the meantime, we remain
focused on maintaining sufficient liquidity and positioning our
portfolio for potential future appreciation, which we believe will
occur as the economy continues to reopen.”
2020 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, 2020
September 30, 2020
June 30, 2020(5)
March 31, 2020
Net Interest Income
$
9,503
$
10,117
$
7,076
$
18,741
Other Income (Loss):
Realized gain (loss), net
1,327
718
(6,960
)
89,186
Unrealized gain (loss), net
3,994
54,690
16,040
(296,111
)
Gain (loss) on derivative instruments,
net
219
(88
)
(8,143
)
(189,691
)
Other, net
(46
)
(31
)
(45
)
461
Other Income (loss)
5,494
55,289
892
(396,155
)
Total Expenses
4,176
5,392
24,805
4,534
Income (loss) before income taxes
10,821
60,014
(16,837
)
(381,948
)
Income tax provision (benefit)
29
205
255
(93
)
Net income (loss)
10,792
59,809
(17,092
)
(381,855
)
Net income attributable to non-controlling
interest
2
2
2
2
Net income (loss) attributable to common
stockholders and participating securities
$
10,790
$
59,807
$
(17,094
)
$
(381,857
)
Net income (loss) per Common Share –
Basic/Diluted
$
0.18
$
0.98
$
(0.31
)
$
(7.15
)
Non-GAAP Results
Core earnings (1)
$
7,208
$
6,391
$
4,343
$
15,779
Core earnings per Common Share –
Basic/Diluted
$
0.12
$
0.10
$
0.08
$
0.29
Weighted average yield(2)(4)
5.50
%
5.51
%
5.40
%
4.90
%
Effective cost of funds(3)(4)
4.10
%
3.94
%
3.98
%
3.28
%
Annualized net interest
margin(2)(3)(4)
2.11
%
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 consolidated statements of
operations for the three months ended June 30, 2020 was revised
during the three months ended September 30, 2020 to reflect the
under accrual of interest expense in the amount of $1.5
million.
Portfolio Composition
As of December 31, 2020, the Company owned an aggregate
investment portfolio with a fair market value totaling $3.2
billion. The following tables set forth additional information
regarding the Company’s investment portfolio as of December 31,
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 December 2020, excluding
loans that were in forbearance that are now in repayment period,
represented approximately 0.24% 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 Non-Agency CMBS portfolios have an original LTV of
64.4%, The Company believes there is a reasonable likelihood that
the majority of the delinquent loans that serve as collateral for
the Non-Agency CMBS 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 65.1% original LTV and all
but one of the loans remains current.
The Company's CRE mezzanine loan with an outstanding principal
balance of $90 million is receiving interest payments from a
reserve that will become exhausted in June 2021. The Company
expects this mezzanine loan will become non performing upon
depletion of such reserve.
The Company commenced foreclosure proceedings for its delinquent
commercial loan with an outstanding principal balance of $30.0
million, secured by a hotel. However, on February 24, 2021, the
borrower filed for bankruptcy protection. The Company expects to
move forward with the foreclosure subject to the bankruptcy
process, and believes there is a reasonable likelihood that the
outstanding principal balance of $30 million will be recovered,
although there is no assurance.
The following table summarizes certain characteristics of our
credit sensitive portfolio by investment category as of December
31, 2020 (dollars in thousands):
Principal Balance
Amortized Cost
Fair Value
Weighted Average
Coupon(1)
Non-Agency RMBS
$
38,112
$
23,463
$
21,416
1.6
%
Non-Agency RMBS IOs and IIOs
N/A
6,271
3,965
0.4
%
Non-Agency CMBS
235,497
210,239
164,081
5.0
%
Residential Whole Loans
984,555
1,007,004
1,008,782
5.1
%
Residential Bridge Loans
15,247
15,250
13,916
9.4
%
Securitized Commercial Loans(1)
1,739,793
1,604,320
1,605,335
4.3
%
Commercial Loans
325,444
325,297
310,523
6.4
%
Other Securities
51,537
49,420
48,754
4.4
%
$
3,390,185
$
3,241,264
$
3,176,772
4.8
%
(1)
Includes Residential Bridge Loans carried
at amortized cost of $1.1 million as of December 31, 2020. The fair
value of these loans was $1.1 million as of December 31, 2020.
(2)
As of December 31, 2020, the Company had
real estate owned ("REO") properties with an aggregate carrying
value of $1.1 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 December 31, 2020
(dollars in thousands):
Principal Balance
Amortized Cost
Fair Value
Net Weighted Average
Coupon
Agency RMBS Interest-Only Strips
N/A
$
89
$
143
2.1
%
Agency RMBS Interest-Only Strips,
accounted for as derivatives
N/A
N/A
1,565
2.6
%
Total Agency RMBS
—
89
1,708
2.5
%
Total
$
—
$
89
$
1,708
2.5
%
Portfolio Financing and Hedging
Financing
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 5, 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 a result of refinancing the Residential Whole Loans through a
securitization, the Company accrued a premium recapture fee of
approximately $20.5 million, which was payable at the maturity of
the facility, and was recorded in "Financing fees" in the
Consolidated Statements of Operations.
On October 6, 2020 the Company entered into an amendment with
respect to this residential whole loan facility. The amendment
converted 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 84% and the facility matures on October 5,
2021. In connection with the amendment to the facility, the Company
paid $12.0 million of the premium recapture fee and the balance of
$8.5 million is payable at the maturity of the amended facility on
October 5, 2021.The premium recapture fee was eliminated for
investments financed under the amended facility.
As of December 31, 2020 approximately $67.1 million in non QM
loans remained in the facility with a borrowing amount of $30.2
million.
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 December 31, 2020,
the outstanding balance under this facility was $95.1 million.
The following table sets forth additional information regarding
the Company’s portfolio financing arrangements as of December 31,
2020 (dollars in thousands):
Repurchase Agreements
Balance
Weighted Average Interest Rate
(end of period)
Weighted Average Remaining
Maturity (days)
Short Term Borrowings:
Agency RMBS
$
1,418
1.34
%
59
Non-Agency CMBS
10,313
2.25
%
14
Residential Whole Loans(1)
29,800
3.71
%
15
Residential Bridge Loans(1)
11,254
2.73
%
36
Commercial Loans(1)
34,375
3.32
%
75
Membership Interest
18,844
2.90
%
29
Other Securities
2,594
4.51
%
19
Subtotal
108,598
3.19
%
39
Long Term Borrowings
Non-Agency CMBS(3)
66,767
5.23
%
126
Non-Agency RMBS
14,643
5.23
%
126
Residential Whole Loans(1) (2)
30,224
3.00
%
278
Commercial Loans (2)
124,937
2.17
%
287
Other Securities
13,677
5.24
%
126
Subtotal
250,248
3.74
%
225
Repurchase agreements
borrowings
358,846
3.57
%
169
Less unamortized debt issuance costs
1,923
N/A
N/A
Repurchase agreements borrowings,
net
$
356,923
3.57
%
169
(1)
Repurchase agreement borrowings on loans
owned are through trust certificates. The trust certificates are
eliminated in consolidation.
(2)
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.
(3)
Includes repurchase agreement borrowings
on securities eliminated upon VIE consolidation.
Certain of the financing arrangements provide the counterparty
with the right to terminate the agreement if the Company does not
maintain certain equity, liquidity and leverage metrics. With the
exception of one repurchase agreement for which the Company
received a waiver, the Company was in compliance with the terms of
such financial tests as of December 31, 2020.
Convertible Senior Unsecured Notes
At December 31, 2020, the Company had $175.0 million aggregate
principal amount of 6.75% convertible senior unsecured notes. 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.
On July 1, 2020, the Company issued an aggregate of 1,354,084
shares of its common stock, par value $0.01 per share (the “Common
Stock”), in exchange for $5.0 million aggregate principal amount of
the 2022 Notes pursuant to separate privately negotiated exchange
agreements entered into on July 1, 2020 soliciting such
exchange.
In the fourth quarter of 2020, the Company repurchased $25
million aggregate principal amount of the 2022 Notes at an
approximate 13% discount to par value, plus accrued and unpaid
interest.
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 $939.2 million of
Residential Whole Loans as of December 31, 2020.
Arroyo 2019-2
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2019-2 securitization trust at
December 31, 2020 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1
$
511,623
3.3
%
$
511,620
4/25/2049
Class A-2
27,414
3.5
%
27,414
4/25/2049
Class A-3
43,433
3.8
%
43,430
4/25/2049
Class M-1
25,055
4.8
%
25,055
4/25/2049
Subtotal
$
607,525
$
607,519
Less: Unamortized Deferred Financing
Costs
N/A
4,398
Total
$
607,525
$
603,121
The Company retained the subordinate bonds and these bonds had a
fair market value of $43.2 million at December 31, 2020. The
retained Arroyo 2019-2 subordinate bonds are eliminated in
consolidation. The securitized debt of the Arroyo 2019-2 Trust can
only be settled with the residential loans that serve as collateral
for the securitized debt and is non-recourse to the Company.
Arroyo 2020-1
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2020-1 securitization trust at
December 31, 2020 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1A
$
222,117
1.7
%
$
222,112
3/25/2055
Class A-1B
26,357
2.1
%
26,357
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
291,694
291,688
Less: Unamortized Deferred Financing
Costs
N/A
2,519
Total
$
291,694
$
289,169
The Company retained the subordinate bonds and these bonds had a
fair market value of $27.7 million at December 31, 2020. The
retained Arroyo 2020-1 subordinate bonds are eliminated in
consolidation. The securitized debt of the Arroyo 2020-1 Trust can
only be settled with the residential loans that serve as collateral
for the securitized debt and is non-recourse to the Company.
Commercial Mortgage-Backed Notes
RETL 2019 Trust
The following table summarizes RETL 2019 Trust's commercial
mortgage pass-through certificates, at December 31, 2020 (dollars
in thousands), which is non-recourse to the Company:
Classes
Principal Balance
Coupon
Fair Value
Contractual Maturity
Class B
$
502
1.7
%
$
492
3/15/2021
Class C
308,400
2.3
%
296,933
3/15/2021
Class X-EXT(1)
N/A
1.1
%
31
3/15/2021
$
308,902
$
297,456
(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 $41.9 million at December 31, 2020. The
securitized debt of the RETL 2019 Trust can only be settled with
the commercial loan, with an outstanding principal balance of
approximately $354.2 million at December 31, 2020, that serves as
collateral for the securitized debt and is non-recourse to the
Company.
CSMC 2014 USA
The following table summarizes CSMC 2014 USA's commercial
mortgage pass-through certificates at December 31, 2020 (dollars in
thousands), which is non-recourse to the Company:
Classes
Principal Balance
Coupon
Fair Value
Contractual Maturity
Class A-1
$
120,391
3.3
%
$
120,443
9/11/2025
Class A-2
531,700
4.0
%
538,469
9/11/2025
Class B
136,400
4.2
%
137,970
9/11/2025
Class C
94,500
4.3
%
85,140
9/11/2025
Class D
153,950
4.4
%
127,092
9/11/2025
Class E
180,150
4.4
%
131,906
9/11/2025
Class F
153,600
4.4
%
99,859
9/11/2025
Class X-1(1)
n/a
0.5
%
12,794
9/11/2025
Class X-2(1)
n/a
0.4
%
2,593
9/11/2025
$
1,370,691
$
1,256,266
(1)
Class X-1 and X-2 are interest-only
classes with notional balances of $652.1 million and $733.5 million
as of December 31, 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 $9.7 million at December 31, 2020. The securitized
debt of the CSMC USA can only be settled with the commercial loan
with an outstanding principal balance of approximately $1.4 billion
at December 31, 2020, that serves as collateral for the securitized
debt and is non-recourse to the Company.
Derivatives Activity
The following table summarizes the Company’s other derivative
instruments at December 31, 2020 (dollars in thousands):
Other Derivative Instruments
Notional Amount
Fair Value
Credit default swaps, asset
$
2,030
$
161
Other derivative instruments, assets
161
Credit default swaps, liability
$
4,140
$
(656
)
Total other derivative instruments,
liabilities
(656
)
Total other derivative instruments,
net
$
(495
)
Dividend
To preserve liquidity, we suspended our first and second quarter
of 2020 common stock dividends in light of extraordinary market
volatility driven by uncertainty surrounding the COVID-19
pandemic.
In the third quarter of 2020, we resumed our quarterly dividend
after making progress strengthening our balance sheet and improving
liquidity and earnings power of our investment portfolio. For the
quarters ended September 30, 2020 and December 31, 2020, we
declared a $0.05 and $0.06 dividend per share, respectively,
generating a dividend yield of approximately 6.7% based on the
stock closing price of $3.26 at December 31, 2020.
Conference Call
The Company will host a conference call with a live webcast
tomorrow, March 4, 2021, 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, 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
https://dpregister.com/sreg/10151900/e1a85456ac 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 18, 2021 by
dialing (877) 344-7529 from the United States, or (412) 317-0088
from outside the United States, and entering conference ID
10151900. 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
This press release contains statements that 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.
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.
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.
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Balance
Sheets
(in thousands—except share and
per share data)
December 31, 2020
December 31, 2019
Assets:
Cash and cash equivalents
$
31,613
$
31,331
Restricted cash
76,132
52,948
Agency mortgage-backed securities, at fair
value ($1,708 and $1,756,917 pledged as collateral, at fair value,
respectively)
1,708
1,795,255
Non-Agency mortgage-backed securities, at
fair value ($167,970 and $292,613 pledged as collateral, at fair
value, respectively)
189,462
361,833
Other securities, at fair value ($48,754
and $80,031 pledged as collateral, at fair value, respectively)
48,754
80,161
Residential Whole-Loans, at fair value
($1,008,782 and $1,375,860 pledged as collateral, at fair value,
respectively)
1,008,782
1,375,860
Residential Bridge Loans ($12,813 and
$33,269 at fair value and $12,960 and $34,897 pledged as
collateral, respectively)
13,916
36,419
Securitized commercial loan, at fair
value
1,605,335
909,040
Commercial Loans, at fair value ($310,523
and $350,213 pledged as collateral, at fair value,
respectively)
310,523
370,213
Investment related receivable
30,576
19,931
Interest receivable
13,568
19,413
Due from counterparties
2,327
98,947
Derivative assets, at fair value
161
5,111
Other assets
3,152
4,509
Total Assets (1)
$
3,336,009
$
5,160,971
Liabilities and Stockholders’ Equity:
Liabilities:
Repurchase agreements, net
$
356,923
$
2,824,801
Convertible senior unsecured notes,
net
170,797
197,299
Securitized debt, net ($1,553,722 and
$681,643 at fair value and $215,753 and $142,905 held by
affiliates, respectively)
2,446,012
1,477,454
Interest payable (includes $784 and $647
on securitized debt held by affiliates, respectively)
12,006
15,001
Due to counterparties
321
709
Derivative liability, at fair value
656
6,370
Accounts payable and accrued expenses
2,686
3,188
Payable to affiliate
3,171
2,148
Dividend payable
3,649
16,592
Other liabilities
84,674
52,948
Total Liabilities (2)
3,080,895
4,596,510
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value, 500,000,000
shares authorized, and 60,812,701 and 53,523,876 outstanding,
respectively
609
535
Preferred stock, $0.01 par value,
100,000,000 shares authorized and no shares outstanding
—
—
Treasury stock, at cost 0,100 and 0 shares
held, respectively
(578
)
—
Additional paid-in capital
915,458
889,227
Retained earnings (accumulated
deficit)
(660,377
)
(325,301
)
Total Stockholders’ Equity
255,112
564,461
Total Liabilities and Stockholders’
Equity
$
3,336,009
$
5,160,971
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Balance Sheets
(Continued)
(in thousands—except share and
per share data)
December 31, 2020
December 31, 2019
(1) Assets of consolidated VIEs included
in the total assets above:
Cash and cash equivalents
$
—
$
7,589
Restricted cash
76,132
52,948
Residential Whole-Loans, at fair value
($1,008,782 and $1,375,860 pledged as collateral, at fair value,
respectively)
1,008,782
1,375,860
Residential Bridge Loans ($11,858 and
$31,748 at fair value and $12,960 and $34,897 pledged as
collateral, respectively)
12,960
34,897
Securitized commercial loan, at fair
value
1,605,335
909,040
Commercial Loans, at fair value ($68,466
and $90,788 pledged as collateral, respectively)
68,466
90,788
Investment related receivable
27,987
19,138
Interest receivable
10,936
10,829
Other assets
80
90
Total assets of consolidated VIEs
$
2,810,678
$
2,501,179
(2) Liabilities of consolidated VIEs
included in the total liabilities above:
Securitized debt, net ($1,553,722 and
$681,643 at fair value and $215,753 and $142,905 held by
affiliates, respectively)
$
2,446,012
$
1,477,454
Interest payable (includes $784 and $647
on securitized debt held by affiliates, respectively)
7,882
3,886
Accounts payable and accrued expenses
89
185
Other liabilities
76,132
$
52,948
Total liabilities of consolidated VIEs
$
2,530,115
$
1,534,473
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Statements of
Operations
(in thousands—except share and
per share data)
Three Months Ended(2)
The Year Ended
December 31, 2020
September 30, 2020
June 30, 2020(1)
March 31, 2020
December 31, 2020
Net Interest Income
Interest income
$
47,718
$
43,970
$
31,494
$
54,846
$
178,028
Interest expense
38,215
33,853
24,418
36,105
132,591
Net Interest Income
9,503
10,117
7,076
18,741
45,437
Other Income (Loss)
Realized gain (loss) on sale of
investments, net
1,327
718
(6,960
)
89,186
84,271
Unrealized gain (loss), net
3,994
54,690
16,040
(296,111
)
(221,387
)
Gain (loss) on derivative instruments,
net
219
(88
)
(8,143
)
(189,691
)
(197,703
)
Other, net
(46
)
(31
)
(45
)
461
339
Other Income (Loss)
5,494
55,289
892
(396,155
)
(334,480
)
Expenses
Management fee to affiliate
1,528
1,513
464
1,039
4,544
Financing fee
—
—
20,540
—
20,540
Other operating expenses
(139
)
1,198
796
1,000
2,855
General and administrative expenses:
Compensation expense
717
716
692
662
2,787
Professional fees
1,030
827
1,541
1,480
4,878
Other general and administrative
expenses
1,040
1,138
772
353
3,303
Total general and administrative
expenses
2,787
2,681
3,005
2,495
10,968
Total Expenses
4,176
5,392
24,805
4,534
38,907
Income (loss) before income
taxes
10,821
60,014
(16,837
)
(381,948
)
(327,950
)
Income tax provision (benefit)
29
205
255
(93
)
396
Net income (loss)
10,792
$
59,809
$
(17,092
)
$
(381,855
)
$
(328,346
)
Net income attributable to non-controlling
interest
2
2
2
2
8
Net income (loss) attributable to
common stockholders and participating securities
$
10,790
$
59,807
$
(17,094
)
$
(381,857
)
$
(328,354
)
Net income (loss) per Common Share –
Basic
$
0.18
$
0.98
$
(0.31
)
$
(7.15
)
$
(5.72
)
Net income (loss) per Common Share –
Diluted
$
0.18
$
0.98
$
(0.31
)
$
(7.15
)
$
(5.72
)
Dividends Declared per Share of Common
Stock
$
0.06
$
0.05
$
—
$
—
$
0.11
(1)
The consolidated statements of operations
for the three months ended June 30, 2020 was revised during the
three months ended September 30, 2020 to reflect the under accrual
of interest expense in the amount of $1.5 million.
(2)
Consolidated Statements of Operations for
each of the three months ended March 31, 2020, June 30, 2020,
September 30, 2020 and December 31, 2020 are unaudited.
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, 2020, June 30, 2020, September 30, 2020 and December 31, 2020
and the year ended December 31, 2020:
Three Months Ended
The Year Ended
(dollars in thousands)
December 31, 2020
September 30, 2020
June 30, 2020(1)
March 31, 2020
December 31, 2020
Net Income (loss) attributable to common
stock holders and participating securities
$
10,790
$
59,807
$
(17,094
)
$
(381,857
)
$
(328,354
)
Income tax provision (benefit)
29
205
255
(93
)
396
Net income (loss) before income tax
10,819
60,012
(16,839
)
(381,950
)
(327,958
)
Adjustments:
Investments:
Unrealized (gain) loss on investments,
securitized debt and other liabilities
(3,994
)
(54,690
)
(16,040
)
296,111
221,387
Realized (gain) loss on sale of
investments
1,059
540
6,960
(89,186
)
(80,627
)
One-time transaction costs
243
57
20,652
280
21,232
Derivative Instruments:
Net realized (gain) loss on
derivatives
1
(154
)
13,152
180,156
193,155
Unrealized (gain) loss on derivatives
(169
)
288
(4,973
)
8,807
3,953
Other:
Realized gain on extinguishment of
convertible senior unsecured notes
(2,386
)
(1,258
)
—
—
(3,644
)
Amortization of discount on convertible
senior note
267
284
273
273
1,097
Other non-cash adjustments
1,186
1,130
988
—
3,304
Non-cash stock-based compensation
expense
182
182
170
165
699
Total adjustments
(3,611
)
(53,621
)
21,182
396,606
360,556
Core Earnings – Non-GAAP
$
7,208
$
6,391
$
4,343
$
14,656
$
32,598
Basic and Diluted Core Earnings per Common
Share and Participating Securities
$
0.12
$
0.10
$
0.08
$
0.27
$
0.57
Basic and Diluted Core Earnings plus Drop
Income per Common Share and Participating Securities
$
0.12
$
0.10
$
0.08
$
0.29
$
0.59
Basic weighted average common shares and
participating securities
61,101,485
61,101,485
54,921,847
53,670,550
57,723,544
Diluted weighted average common shares and
participating securities
61,101,485
61,101,485
54,921,847
53,670,550
57,723,544
(1)
The consolidated statements of operations
for the three months ended June 30, 2020 was revised during the
three months ended September 30, 2020 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)
December 31, 2020
September 30, 2020
June 30, 2020(1)
March 31, 2020
Net interest income
$
9,503
$
10,117
$
7,076
$
18,741
Interest income from IOs and IIOs
accounted for as derivatives
33
34
69
91
Net interest income from interest rate
swaps
—
—
—
(1,133
)
Adjusted net interest income
9,536
10,151
7,145
17,699
Total expenses
(4,174
)
(5,392
)
(24,805
)
(4,534
)
Non-cash stock-based compensation
182
182
170
165
Other non-cash adjustments
1,186
1,130
988
—
One-time transaction costs
243
57
20,652
280
Amortization of discount on convertible
unsecured senior notes
267
284
273
273
Interest income on cash balances and other
income (loss), net
(30
)
(19
)
(78
)
775
(2
)
(2
)
(2
)
(2
)
Core Earnings
$
7,208
$
6,391
$
4,343
$
14,656
(1)
The consolidated statements of operations
for the three months ended June 30, 2020 was revised during the
three months ended September 30, 2020 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)
December 31, 2020
September 30, 2020
$ Amount
Per Share
$ Amount
Per Share
GAAP Book Value at September 30, 2020
and June 30, 2020
$
247,789
$
4.07
$
187,253
$
3.15
Debt to equity exchange of the convertible
senior notes
—
—
3,588
(0.01
)
Common dividend
(3,649
)
(0.06
)
(3,041
)
(0.05
)
244,140
4.01
187,800
3.09
Portfolio Income
Net Interest Margin
9,491
0.16
10,120
0.16
Realized gain (loss), net
(1,041
)
(0.02
)
(374
)
(0.01
)
Unrealized gain (loss), net
4,162
0.07
54,399
0.89
Net portfolio income
12,612
0.21
64,145
1.04
Net realized gain (loss) on debt
extinguishment
2,384
0.04
1,258
0.02
Operating expenses
(1,390
)
(0.02
)
(2,711
)
(0.04
)
General and administrative expenses,
excluding equity based compensation
(2,605
)
(0.04
)
(2,498
)
(0.04
)
Provision for taxes
(29
)
—
(205
)
—
GAAP Book Value at December 30, 2020
and September 30, 2020
$
255,112
$
4.20
$
247,789
$
4.07
Adjustments to deconsolidate VIEs and
reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets
(2,651,627
)
(43.60
)
(2,827,360
)
(46.48
)
Deconsolidation VIEs liabilities
2,528,536
41.58
2,705,246
44.48
Interest in securities of VIEs owned, at
fair value
122,533
2.01
124,309
2.04
Economic Book Value at December 31,
2020 and September 30, 2020
$
254,554
$
4.19
$
249,984
$
4.11
"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
(Unaudited, in
thousands)
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
December 31, 2020, September 30, 2020, June 30, 2020 and March 31,
2020:
Three Months Ended
The Year Ended
(dollars in thousands)
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2020
Coupon interest income
$
43,545
$
40,039
$
33,007
$
57,761
$
174,352
Premium amortization, discount accretion
and amortization of basis, net
4,173
3,931
(1,513
)
(2,915
)
3,676
Interest income
$
47,718
$
43,970
$
31,494
$
54,846
$
178,028
Contractual interest income, net of
amortization of basis on Agency and Non-Agency Interest-Only
Strips, classified as derivatives(1):
Coupon interest income
148
200
340
636
1,324
Amortization of basis (Non-GAAP Financial
Measure)
(114
)
(166
)
(271
)
(545
)
(1,096
)
Subtotal
34
34
69
91
228
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
$
47,752
$
44,004
$
31,563
$
54,937
$
178,256
(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 December 31, 2020, September 30, 2020, June 30,
2020 and March 31, 2020:
Three Months Ended
December 31, 2020
September 30, 2020
6/30/2020(1)
March 31, 2020
(dollars in thousands)
Interest
Effective Borrowing
Costs
Interest
Effective Borrowing
Costs
Interest
Effective Borrowing
Costs
Interest
Effective Borrowing
Costs
Interest expense
$
38,215
4.98
%
$
33,853
4.80
%
$
24,418
3.97
%
$
36,105
3.34
%
Adjustments:
Interest expense on Securitized debt from
consolidated VIEs
(23,106
)
(5.80
)%
(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
$
15,109
4.10
%
$
15,256
3.94
%
$
19,757
3.98
%
$
30,484
3.28
%
Weighted average borrowings
$
1,465,456
$
1,538,970
$
1,994,405
$
3,733,045
(1)
The consolidated statements of operations
for the three months ended June 30, 2020 was revised during the
three months ended September 30, 2020 to reflect the under accrual
of interest expense in the amount of $1.5 million.
The Year Ended
December 31, 2020
December 31, 2019
(dollars in thousands)
Interest
Effective Borrowing
Costs
Interest
Effective Borrowing
Costs
Interest expense
$
132,591
4.19
%
$
150,274
3.48
%
Adjustments:
Interest expense on Securitized debt from
consolidated VIEs
(53,118
)
(5.38
)%
(30,312
)
(4.15
)%
Net interest (received) paid - interest
rate swaps
1,133
0.04
%
(9,501
)
(0.22
)%
Effective Borrowing Costs
$
80,606
3.70
%
$
110,461
3.07
%
Weighted average borrowings
$
2,180,532
$
3,594,020
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210303006000/en/
Investor Relations Contact: Larry Clark Financial Profiles, Inc.
(310) 622-8223 lclark@finprofiles.com
Media Contact: Tricia Ross Financial Profiles, Inc. (310)
622-8226 tross@finprofiles.com
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