Conference Call and Webcast Scheduled for
Tomorrow, Wednesday, August 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 second
quarter ended June 30, 2021.
SECOND QUARTER 2021 FINANCIAL RESULTS
During the second quarter we continued strengthening our balance
sheet by favorably amending two key financing facilities, and
improving liquidity. Second quarter financial results included the
following:
- GAAP book value per share was $3.55 at June 30, 2021.
- Economic book value(2) per share of $3.28 at June 30,
2021.
- GAAP net loss of $40.2 million, or a net loss of $0.66 per
basic and diluted share.
- Included in GAAP net loss is an unrealized loss of $48.7
million related to the decline in fair value of a $90 million
non-performing commercial mezzanine loan.
- Distributable Earnings(1) of $2.8 million, or $0.05 per basic
and diluted share.
- Economic return on GAAP book value(3) was negative 15.5% for
the quarter.
- 1.51% annualized net interest margin (1)(4)(5) on our
investment portfolio.
- Recourse leverage was 2.5x at June 30, 2021.
- On June 22, 2021, we declared a second quarter common dividend
of $0.06 per share.
BUSINESS UPDATE
- In May 2021, we amended our Non-Agency CMBS and Non-Agency RMBS
financing facility to, among other things, extend the facility for
an additional 12 months and reduce the interest rate. The amended
facility bears interest at a rate of three-month LIBOR plus
2.00%.
- In May 2021, we amended our Commercial Whole Loan Facility to,
among other things, convert the term to a 12-month facility with up
to a 12-month extension option, subject to the lender's
consent.
- On July 29, 2020, the Company appointed Greg Handler as Chief
Investment Officer of the Company and Sean Johnson as Deputy Chief
Investment Officer of the Company. Mr. Handler was previously the
Company's Interim Co-Chief Investment Officer and is the Head of
the Mortgage and Consumer Credit team at Western Asset Management
Company, LLC, the Company’s external manager (the “Manager”). Mr.
Johnson was previously the Company's Interim Co-Chief Investment
Officer and is a Portfolio Manager on the Mortgage and Consumer
Credit team at our Manager.
- In the second quarter of 2021, the non – GAAP financial measure
of Core Earnings was renamed Distributable Earnings. Refer to page
14 of this press release for a reconciliation of GAAP Net Income
(Loss) to Non-GAAP Distributable Earnings.
- Economic book value is a non-GAAP financial measure. Refer to
page 16 of this press release for the reconciliation of GAAP book
value to non-GAAP economic book value.
- 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.
- Includes interest-only securities accounted for as
derivatives.
- Excludes the consolidation of VIE trusts required under
GAAP.
MANAGEMENT COMMENTARY
“While the Company saw credit spreads improve across a number of
its portfolio holdings during the second quarter, our financial
results were negatively impacted by the decline in fair value on
one non-performing commercial whole loan,” said Jennifer Murphy,
Chief Executive Officer of the Company. “This write-down resulted
in a GAAP net loss of $40.2 million, or $0.66 per share, and a
decrease in our GAAP book value per share of 16.9% from the first
quarter. Our core, or distributable, earnings for the second
quarter were $2.8 million, or $0.05 per share, and were also
negatively impacted as the commercial loan was placed on nonaccrual
status during the quarter.
“During the quarter, we took additional actions to strengthen
our balance sheet and improve the future earnings power of the
portfolio. These measures included amending two key financing
facilities under more favorable terms and conditions as well as
extending their maturities. Our ongoing focus on fortifying our
balance sheet, maintaining sufficient liquidity and low recourse
leverage is enabling us to continue executing on our investment
strategy. We believe we are well positioned to benefit from what we
anticipate will be the continued recovery of asset values and
earnings sustainability of our portfolio,” Ms. Murphy
concluded.
Greg Handler, Chief Investment Officer of the Company,
commented, “The credit markets continued to improve in the second
quarter, and this translated into higher valuations on a number of
our portfolio holdings. Our residential portfolio has performed
well as the housing market remains strong. However, it is taking
longer for some of our commercial real estate investments to
recover in value. While the outlook for commercial real estate
continues to improve, uncertainty remains around the timing and
extent of a recovery in the performance of a number of property
types. We expect these near-term challenges will eventually subside
as the economy further improves and these properties begin to
return to more normal levels of operations.
“While we are disappointed with the decline in book value for
the quarter, we continue to work diligently on reaching positive
resolutions on our two challenged credits as well as positioning
the remainder of our portfolio for potential future appreciation.
We believe that this should enable us to return to generating
sustainable earnings that support an attractive dividend, with the
overall goal of protecting and enhancing value for the benefit of
our shareholders,” Mr. Handler concluded.
OPERATING RESULTS
The below table reflects a summary of our operating results:
For the Three Months
Ended
GAAP Results
June 30, 2021
March 31, 2021
($ in thousands)
Net Interest Income
$
6,590
$
9,248
Other Income (Loss):
Realized gain (loss), net
(116
)
(5,725
)
Unrealized gain (loss), net
(42,318
)
9,050
Gain (loss) on derivative instruments,
net
175
26
Other, net
200
(28
)
Other Income (Loss)
(42,059
)
3,323
Total Expenses
4,591
4,518
Income (loss) before income taxes
(40,060
)
8,053
Income tax provision (benefit)
101
98
Net income (loss)
$
(40,161
)
$
7,955
Net income attributable to non-controlling
interest
2
2
Net income (loss) attributable to common
stockholders and participating securities
$
(40,163
)
$
7,953
Net income (loss) per Common Share –
Basic/Diluted
$
(0.66
)
$
0.13
Non-GAAP Results
Distributable earnings (1)
$
2,761
$
6,143
Distributable earnings per Common Share –
Basic/Diluted(1)
$
0.05
$
0.10
Weighted average yield(2)(3)
4.72
%
5.55
%
Effective cost of funds(3)
3.94
%
4.10
%
Annualized net interest margin(2)(3)
1.51
%
2.19
%
(1)
For a reconciliation of GAAP
Income to Distributable Earnings, refer to page 14 of this press
release.
(2)
Includes interest-only securities
accounted for as derivatives.
(3)
Excludes the consolidation of VIE
trusts required under GAAP.
INVESTMENT PORTFOLIO
Portfolio Composition
As of June 30, 2021, the Company owned an aggregate investment
portfolio with a fair market value totaling $2.9 billion. The
following table summarizes certain characteristics of our portfolio
by investment category as of June 30, 2021 (dollars in
thousands):
Principal Balance
Amortized Cost
Fair Value
Weighted Average
Coupon(1)(3)
Non-Agency RMBS
$
37,184
$
22,735
$
23,370
4.3
%
Non-Agency RMBS IOs and IIOs
N/A
5,900
2,760
0.3
%
Non-Agency CMBS
224,590
207,089
147,635
5.0
%
Agency RMBS IO and IIOs
N/A
70
1,501
2.0
%
Residential Whole Loans
766,090
783,665
801,503
5.0
%
Residential Bridge Loans(1),(2)
9,319
9,320
8,450
9.6
%
Securitized Commercial Loans
1,600,136
1,477,023
1,595,077
4.4
%
Commercial Loans
325,142
325,113
267,203
3.4
%
Other Securities
51,372
48,389
51,433
4.6
%
$
3,013,833
$
2,879,304
$
2,898,932
4.1
%
(1)
Includes Residential Bridge Loans
carried at amortized cost of $1.0 million as of June 30, 2021. The
fair value of these loans was $881 thousand as of June 30,
2021.
(2)
As of June 30, 2021, the Company
had real estate owned ("REO") properties with an aggregate carrying
value of $1.7 million related to foreclosed Bridge Loans. The REO
properties are classified in "Other assets" in the Consolidated
Balance Sheets.
(3)
The calculation of the weighted
average coupon rate includes the weighted average coupon rates of
IOs and IIOs accounted for as derivatives using their notional
amounts.
Portfolio Performance
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 June 30, 2021, excluding loans that
were in forbearance that are now in repayment period, represented
approximately 0.3% 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 Non-Agency CMBS portfolio is performing in line
with expectations under the current pandemic conditions. The
Non-Agency CMBS portfolios have an original LTV of 65.5%. 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 Company's Commercial Loans have an original LTV of 65.1%,
and all but the two loans discussed below remain current. One of
the Company's commercial loans collateralized by nursing facilities
with a principal balance of $45.2 million paid off in full on July
7, 2021.
The Company's CRE mezzanine loan with an outstanding principal
balance of $90 million became non-performing in May 2021 upon
depletion of the interest reserve in May 2021. Additionally, on May
10, 2021, the administrative agent for the senior mortgage loan on
the Property (the “Administrative Agent”) notified us, as
administrative agent for the junior mezzanine loan, of the
Administrative Agent’s intent to accept an assignment in lieu of
foreclosure with respect to the Property if the junior mezzanine
lenders did not elect to purchase the senior mortgage loan within
30 days pursuant to the terms set forth in an intercreditor
agreement among the Administrative Agent, the Company and the
senior mezzanine lender. The senior mezzanine lender was provided
with a similar notice on May 10, 2021. Since the original notice
provided by the Administrative Agent on May 10, 2021, the
Administrative Agent has extended the deadline for the junior
mezzanine lenders and the senior mezzanine lender to exercise their
purchase right with respect to the senior mortgage loan a total of
three times, with the most recent extension expiring on July 14,
2021. The notice expired on July 14, 2021, and neither the junior
mezzanine lenders nor the senior mezzanine lender has offered to
purchase the senior mortgage loan.
During the second quarter the fair value of the loan declined
significantly to reflect the new facts and circumstances that
unfolded in the quarter. The Company is currently in discussions
with the borrower and certain other lenders regarding alternatives
to address the situation which might include modifications of loan
terms, deferral of payments and the funding of new advances. There
can be no assurance that these discussions will result in an
outcome in which the Company would be repaid any amount of the loan
and the Company may suffer further declines in fair value with
respect to the mezzanine investment. For example, if the assignment
in lieu of foreclosure were to move forward, or under other
potential scenarios, such as a traditional foreclosure process
initiated by one of the senior lenders, the Company may experience
a total loss of its investment, which at current levels would
result in a $32.7 million reduction in the Company’s book
value.
In October 2020, 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 halting the
foreclosure process. While the borrower has been seeking to sell
the property backing the loan, no sales agreement has been
executed, and there are still uncertainties surrounding the pace
and ultimate execution of the property sale. However, the Company
believes there is a reasonable likelihood that the outstanding
principal balance of $30.0 million will be recovered, although
there is no assurance of full recovery.
PORTFOLIO FINANCING AND HEDGING
Financing
The following table sets forth additional information regarding
the Company’s portfolio financing arrangements as of June 30, 2021
(dollars in thousands):
Collateral
Outstanding Borrowings
Weighted Average Interest
Rate
Weighted Average Remaining
Days to Maturity
Short Term Borrowings:
Agency RMBS
$
1,156
1.04
%
60
Non-Agency CMBS
10,313
1.75
%
12
Residential Whole-Loans(1)
28,512
2.90
%
8
Residential Bridge Loans(1)
6,801
2.68
%
37
Commercial Loans(1)
30,938
3.22
%
78
Membership Interest
20,022
2.85
%
34
Other Securities
2,378
3.74
%
19
Subtotal
100,120
2.85
%
38
Long Term Borrowings
Non-Agency CMBS(3)
74,312
2.18
%
253
Non-Agency RMBS
15,632
2.18
%
309
Residential Whole-Loans (1)(2)
32,610
3.00
%
97
Commercial Loans (2)
115,302
2.05
%
119
Other Securities
27,506
2.17
%
309
Subtotal
265,362
2.22
%
184
Repurchase Agreements Borrowings
$
365,482
2.39
%
144
Less Unamortized Debt Issuance Costs
647
N/A
N/A
Repurchase Agreements Borrowings, net
$
364,835
2.39
%
144
(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 is 12 months. 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. The
Company was in compliance with the terms of such financial metrics
as of June 30, 2021.
Residential Whole Loan Facility
The Company's residential whole loan facility has an advance
rate of 84% and has an interest rate of LIBOR plus 2.75%, with a
LIBOR floor of 0.25%. The facility matures on October 5, 2021. As
of June 30, 2021 approximately $63.4 million in non QM loans were
financed in the facility with outstanding borrowings of $32.6
million.
Commercial Whole Loan Facility
As of June 30, 2021, the Company had approximately $115.3
million in borrowings, with a weighted average interest rate of
2.05% under its commercial whole loan facility. The borrowing is
secured by loans with an estimated fair market value of $165.8
million as of June 30, 2021. On May 5, 2021, we amended our
Commercial Whole Loan Facility to, among other things, convert the
term to a 12-month facility with up to a 12-month extension option,
subject to the lender's consent.
Non-Agency CMBS and Non-Agency RMBS Facility
The Company securities repurchase facility has limited mark to
market margin requirements and at March 31, 2021, had an interest
rate of three-month LIBOR plus 5.0% payable quarterly in arrears.
On May 5, 2021, we amended our Non-Agency CMBS and Non-Agency RMBS
financing facility to, among other things, extend the facility for
an additional 12 months and reduce the interest rate. The amended
facility has improved advance rates and bears interest at a rate of
three-month LIBOR plus 2.00%. As of June 30, 2021, the outstanding
balance under this facility was $117.5 million.
Convertible Senior Unsecured Notes
At June 30, 2021, the Company had $168.3 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.
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 $736.4 million 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
June 30, 2021 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1
$
378,754
3.3%
$
378,751
4/25/2049
Class A-2
20,303
3.5%
20,302
4/25/2049
Class A-3
32,165
3.8%
32,164
4/25/2049
Class M-1
25,055
4.8%
25,055
4/25/2049
456,277
456,272
Less: Unamortized Deferred Financing
Cost
N/A
3,953
Total
$
456,277
$
452,319
The Company retained the subordinate bonds and these bonds had a
fair market value of $37.5 million at June 30, 2021. 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
June 30, 2021 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1A
$
168,015
1.7%
$
168,010
3/25/2055
Class A-1B
19,937
2.1%
19,937
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
231,172
231,166
Less: Unamortized Deferred Financing
Costs
N/A
2,277
Total
$
231,172
$
228,889
The Company retained the subordinate bonds and these bonds had a
fair market value of $27.3 million at June 30, 2021. 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 June 30, 2021 (dollars in
thousands), which is non-recourse to the Company:
Classes
Principal Balance
Coupon
Fair Value
Contractual Maturity
Class C
$
169,245
2.2%
$
168,816
3/15/2022
Class X-EXT(1)
N/A
1.2%
17
3/15/2022
$
169,245
$
168,833
(1) Class X-EXT is an interest-only class
with an initial notional balance of $169.2 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 $43.1 million at June 30, 2021. The
securitized debt of the RETL 2019 Trust can only be settled with
the commercial loan, with an outstanding principal balance of
approximately $214.5 million at June 30, 2021, 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 June 30, 2021 (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%
$
127,207
9/11/2025
Class A-2
531,700
4.0%
573,062
9/11/2025
Class B
136,400
4.2%
141,766
9/11/2025
Class C
94,500
4.3%
93,844
9/11/2025
Class D
153,950
4.4%
142,388
9/11/2025
Class E
180,150
4.4%
161,368
9/11/2025
Class F
153,600
4.4%
117,265
9/11/2025
Class X-1(1)
N/A
0.5%
12,347
9/11/2025
Class X-2(1)
N/A
—%
2,572
9/11/2025
$
1,370,691
$
1,371,819
(1) Class X-1 and X-2 are interest-only
classes with notional balances of $652.1 million and $733.5 million
as of June 30, 2021, 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. The bond had a fair market value of
$11.4 million at June 30, 2021. 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 June
30, 2021, that serves as collateral for the securitized debt and is
non-recourse to the Company.
Derivatives Activity
The following table summarizes the Company’s derivative
instruments at June 30, 2021 (dollars in thousands):
Other Derivative Instruments
Notional Amount
Fair Value
Interest rate swaps, asset
$
56,500
$
46
Credit default swaps, asset
2,030
74
Total derivative instruments, assets
120
Credit default swaps, liability
4,140
(573)
Total derivative instruments,
liabilities
(573)
Total derivative instruments, net
$
(453)
DIVIDEND
For the quarter ended June 30, 2021, we declared a $0.06
dividend per share, generating a dividend yield of approximately
7.4% based on the stock closing price of $3.25 at June 30,
2021.
CONFERENCE CALL
The Company will host a conference call with a live webcast
tomorrow, August 4, 2021 at 11:00 a.m. Eastern Time/8:00 a.m.
Pacific Time, to discuss financial results for the second quarter
2021.
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, individuals can visit
https://dpregister.com/sreg/10158309/eaa854ae06 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 August 11, 2021 by
dialing (877) 344-7529 from the United States, or (412) 317-0088
from outside the United States, and entering conference ID
10154409. 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.
Other factors are described in Risk Factors section of the
Company’s annual report on Form 10-K for the period ended December
31, 2020 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 distributable 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)
(Unaudited)
June 30, 2021
March 31, 2021
Assets:
Cash and cash equivalents
$
45,775
$
25,159
Restricted cash
22,975
24,331
Agency mortgage-backed securities, at fair
value ($1,501 and $1,629 pledged as collateral, at fair value,
respectively)
1,501
1,629
Non-Agency mortgage-backed securities, at
fair value ($161,072 and $160,184 pledged as collateral, at fair
value, respectively)
173,765
172,690
Other securities, at fair value ($51,433
and $48,666 pledged as collateral, at fair value, respectively)
51,433
48,666
Residential Whole Loans, at fair value
($801,503 and $929,215 pledged as collateral, at fair value,
respectively)
801,503
929,215
Residential Bridge Loans ($7,471 and
$11,212 at fair value and $8,205 and $12,044 pledged as collateral,
respectively)
8,450
12,315
Securitized commercial loans, at fair
value
1,595,077
1,636,127
Commercial Loans, at fair value ($234,492
and $312,061 pledged as collateral, at fair value,
respectively)
267,203
312,061
Investment related receivable
30,972
33,608
Interest receivable
11,546
13,112
Due from counterparties
3,448
1,065
Derivative assets, at fair value
120
136
Other assets
4,623
3,249
Total Assets (1)
$
3,018,391
$
3,213,363
Liabilities and Stockholders’ Equity:
Liabilities:
Repurchase agreements, net
$
364,835
$
347,132
Convertible senior unsecured notes,
net
165,413
164,835
Securitized debt, net ($1,540,652 and
$1,582,440 at fair value and $214,120 and $217,972 held by
affiliates, respectively)
2,221,860
2,390,122
Interest payable (includes $749 and $765
on securitized debt held by affiliates, respectively)
10,648
8,878
Due to counterparties
421
61
Derivative liability, at fair value
573
648
Accounts payable and accrued expenses
1,863
2,403
Payable to affiliate
1,572
3,161
Dividend payable
3,649
3,649
Other liabilities
31,662
32,873
Total Liabilities (2)
2,802,496
2,953,762
Commitments and contingencies
Stockholders’ Equity:
Common stock: $0.01 par value, 500,000,000
shares authorized, 60,812,701 and 60,812,701 outstanding,
respectively
609
609
Preferred stock, $0.01 par value,
100,000,000 shares authorized and no shares outstanding
—
—
Treasury stock, at cost, 100,000 and
100,000 shares held, respectively
(578
)
(578
)
Additional paid-in capital
915,782
915,659
Retained earnings (accumulated
deficit)
(699,920
)
(656,091
)
Total Stockholders’ Equity
215,893
259,599
Non-controlling interest
2
2
Total Equity
215,895
259,601
Total Liabilities and Equity
$
3,018,391
$
3,213,363
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Balance Sheets
(Continued)
(in thousands—except share and
per share data)
(Unaudited)
June 30, 2021
March 31, 2021
(1)
Assets of consolidated VIEs included in
the total assets above:
Cash and cash equivalents
$
90
$
—
Restricted Cash
22,975
24,331
Residential Whole Loans, at fair value
($801,503 and $929,215 pledged as collateral, at fair value,
respectively)
801,503
929,215
Residential Bridge Loans ($7,226,000 and
$10,941,000 at fair value and $8,205,000 and $12,044,000 pledged as
collateral, respectively)
8,205
12,044
Securitized commercial loans, at fair
value
1,595,077
1,636,127
Commercial Loans, at fair value ($68,661
and $68,569 pledged as collateral, at fair value, respectively)
68,661
68,569
Investment related receivable
28,695
31,239
Interest receivable
9,621
10,594
Other assets
80
80
Total assets of consolidated VIEs
$
2,534,907
$
2,712,199
(2)
Liabilities of consolidated VIEs included
in the total liabilities above:
Securitized debt, net ($1,540,652 and
$1,582,440 at fair value and $214,120 and $217,972 held by
affiliates, respectively)
$
2,221,860
$
2,390,122
Interest payable (includes $749 and $765
on securitized debt held by affiliates, respectively)
6,958
7,594
Accounts payable and accrued expenses
42
48
Other liabilities
22,975
24,331
Total liabilities of consolidated VIEs
$
2,251,835
$
2,422,095
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Statements of
Operations
(in thousands—except share and
per share data)
(Unaudited)
Three months ended
June 30, 2021
March 31, 2021
Net Interest Income
Interest income
$
41,195
$
46,017
Interest expense
34,605
36,769
Net Interest Income
6,590
9,248
Other Income (Loss)
Realized gain (loss), net
(116
)
(5,725
)
Unrealized gain (loss), net
(42,318
)
9,050
Gain (loss) on derivative instruments,
net
175
26
Other, net
200
(28
)
Other Income (Loss)
(42,059
)
3,323
Expenses
Management fee to affiliate
1,490
1,477
Other operating expenses
428
392
General and administrative expenses:
Compensation expense
651
708
Professional fees
1,038
879
Other general and administrative
expenses
984
1,062
Total general and administrative
expenses
2,673
2,649
Total Expenses
4,591
4,518
Income (loss) before income
taxes
(40,060
)
8,053
Income tax provision (benefit)
101
98
Net income (loss)
(40,161
)
7,955
Net income attributable to non-controlling
interest
2
2
Net income (loss) attributable to
common stockholders and participating securities
$
(40,163
)
$
7,953
Net income (loss) per Common Share –
Basic
$
(0.66
)
$
0.13
Net income (loss) per Common Share –
Diluted
$
(0.66
)
$
0.13
Reconciliation of GAAP Net
Income (Loss) to Non-GAAP Distributable Earnings
(in thousands—except share and
per share data)
(Unaudited)
Distributable Earnings (formerly referred
to as Core Earnings) is a non-GAAP financial measure that is used
by us as a key metric to evaluate the effective yield of the
portfolio. Distributable Earnings allows us to reflect the net
investment income of our portfolio as adjusted to reflect the net
interest rate swap interest expense. Distributable Earnings allows
us to isolate the interest expense associated with our interest
rate swaps in order to monitor and project our borrowing costs and
interest rate spread. It is one metric of several used in
determining the appropriate distributions to our shareholders.
The table below reconciles Net Income to
Distributable Earnings for the three months ended June 30, 2021 and
March 31, 2021:
Three months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
Net income (loss) attributable to common
stockholders and participating securities
$
(40,163
)
$
7,953
Income tax provision (benefit)
101
98
Net income (loss) before income taxes
(40,062
)
8,051
Adjustments:
Investments:
Unrealized (gain) loss on investments,
securitized debt and other liabilities
42,318
(9,050
)
Realized (gain) loss on sale of
investments
116
5,965
One-time transaction costs
104
(4
)
Derivative Instruments:
Net realized (gain) loss on
derivatives
(35
)
—
Net unrealized (gain) loss on
derivatives
(25
)
17
Other:
Realized gain on extinguishment of
convertible senior unsecured notes
—
(240
)
Amortization of discount on convertible
senior unsecured notes
239
245
Other non-cash adjustments
—
977
Non-cash stock-based compensation
106
182
Total adjustments
42,823
(1,908
)
Distributable Earnings
$
2,761
$
6,143
Basic and Diluted Distributable Earnings
per Common Share and Participating Securities
$
0.05
$
0.10
Basic weighted average common shares and
participating securities
61,099,889
61,114,060
Diluted weighted average common shares and
participating securities
61,099,889
61,114,060
Alternatively, our Distributable 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)
June 30, 2021
March 31, 2021
Net interest income
$
6,590
$
9,248
Interest income from IOs and IIOs
accounted for as derivatives
23
27
Net interest income from interest rate
swaps
76
—
Adjusted net interest income
6,689
9,275
Total expenses
(4,591
)
(4,518
)
Other non-cash adjustments
—
977
Non-cash stock-based compensation
106
182
One-time transaction costs
104
(4
)
Amortization of discount on convertible
unsecured senior notes
239
245
Interest income on cash balances and other
income (loss), net
216
(12
)
Income attributable to non-controlling
interest
(2
)
(2
)
Distributable Earnings
$
2,761
$
6,143
Reconciliation of GAAP Book
Value to Non-GAAP Economic Book Value
(dollars in thousands)
(Unaudited)
June 30, 2021
$ Amount
Per Share
GAAP Book Value at March 31,
2021
$
259,599
$
4.27
Common dividend
(3,649
)
(0.06
)
255,950
4.21
Portfolio Income (Loss)
Net Interest Margin
6,890
0.11
Realized gain (loss), net
(66
)
—
Unrealized gain (loss), net
(42,295
)
(0.70
)
Net portfolio income (loss)
(35,471
)
(0.59
)
Operating expenses
(1,918
)
(0.03
)
General and administrative expenses,
excluding equity based compensation
(2,567
)
(0.04
)
Provision for taxes
(101
)
—
GAAP Book Value at June 30,
2021
$
215,893
$
3.55
Adjustments to deconsolidate VIEs and
reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets
(2,385,216
)
(39.22
)
Deconsolidation VIEs liabilities
2,249,589
36.99
Interest in securities of VIEs owned, at
fair value
119,219
1.96
Economic Book Value at June 30,
2021
$
199,485
$
3.28
"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 USA, 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 Effective
Cost of Funds
(dollars in thousands)
(Unaudited)
The following table reconciles the
Effective Cost of Funds (Non-GAAP financial measure) with interest
expense for three months ended June 30, 2021 and March 31,
2021:
Three months ended
June 30, 2021
March 31, 2021
(dollars in thousands)
Reconciliation
Cost of Funds/Effective
Borrowing Costs
Reconciliation
Cost of Funds/Effective
Borrowing Costs
Interest expense
$
34,605
5.15
%
$
36,769
5.22
%
Adjustments:
Interest expense on Securitized debt from
consolidated VIEs(1)
(22,277
)
(6.17
)%
(23,035
)
(6.25
)%
Net interest (received) paid - interest rate swaps
(76
)
(0.01
)%
—
—
%
Effective Cost of Funds
$
12,252
3.94
%
$
13,734
4.10
%
Weighted average borrowings
$
1,248,322
$
1,358,620
(1) Excludes third-party sponsored
securitized debt interest expense.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210803006117/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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