Conference Call and Webcast Scheduled for
Tomorrow, Friday, May 6, 2022 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 first quarter
ended March 31, 2022.
BUSINESS UPDATE
The Company continues to execute on its business strategy to
focus on residential real estate investments.
- For the three months ended March 31, 2022, the Company acquired
$119.1 million of Residential Whole Loans.
- The Company also purchased $40.0 million of Non-Agency RMBS
investments during the quarter.
- In February 2022, the Company and other investors sold the
unencumbered hotel property they foreclosed on in 2021. The
Company's share of the gain on sale of the property was
approximately $8.7 million.
- In February 2022, the Company completed its third
securitization of $432.0 million of Residential Whole Loans,
securing $398.9 million of long-term fixed rate financing.
- For the three months ended March 31, 2022, the Company
repurchased $3.4 million aggregate principal amount of its 6.75%
Convertible Senior Unsecured Notes due in 2022 ("2022 Notes") at an
approximate 0.8% premium to par value, plus accrued and unpaid
interest.
FIRST QUARTER 2022 FINANCIAL RESULTS
The rising interest rate environment negatively impacted our
first quarter financial results.
- GAAP book value per share was $2.73 at March 31, 2022.
- Economic book value(1) per share of $2.81 at March 31,
2022.
- GAAP net loss attributable to common shareholders and
participating securities of $25.9 million, or $0.43 per share.
- Distributable Earnings(2) of $379 thousand, or $0.01 per basic
and diluted share.
- Economic return(3) on GAAP book value was negative 13.4% for
the quarter.
- 0.85% annualized net interest margin (1)(4)(5) on our
investment portfolio.
- Recourse leverage was 2.8x at March 31, 2022.
- On March 23, 2022, we declared a first quarter common dividend
of 0.04 per share.
1.
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.
2.
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.
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.
MANAGEMENT COMMENTARY
“Our quarterly results reflect the ongoing challenges of
interest rate volatility and fluctuating asset values, which were
particularly magnified in the first quarter given the rapid raise
in interest rates that occurred,” said Bonnie Wongtrakool, Chief
Executive Officer of the Company. “Credit spreads widened across
most of our holdings over the quarter, putting pressure on our GAAP
book value per share, which declined 14.7% from the prior quarter,
while economic book value per share declined 7.3%. In addition, our
financial results were negatively impacted by lower net interest
income and continued elevated prepayments on our residential whole
loan portfolio. Consequently, our distributable earnings of
$379,000, or $0.01 per share, in the first quarter, were down
$529,000 from the fourth quarter.”
“Against these market challenges, we worked proactively to
strengthen our balance sheet in the first quarter. In February, we
realized a gain of $8.7 million on the sale of the unencumbered
hotel property that we and other investors acquired last year
through foreclosure. We used the proceeds from the sale to reinvest
into our target assets and to repurchase $3.4 million aggregate
principal amount of our existing 2022 Notes at a weighted average
premium to par value of 0.8%. We are confident that we have
sufficient liquidity and the appropriate level of recourse leverage
in order to continue executing on our investment strategy,” Ms.
Wongtrakool concluded.
Greg Handler, Chief Investment Officer of the Company, added,
“We continued to reposition our portfolio in the first quarter,
adding both non-qualified residential mortgages and non-Agency RMBS
to our portfolio as spreads widened during the quarter. While the
first quarter was difficult, we believe that as we redeploy
capital, the earnings power of the portfolio will improve. We
continue to work diligently on reaching positive resolutions on our
challenged investments as well as positioning the remainder of our
portfolio for potential future appreciation, which we believe will
enhance value for the benefit of our shareholders.”
OPERATING RESULTS
The below table reflects a summary of our operating results:
For the Three Months
Ended
GAAP Results
March 31, 2022
December 31, 2021
($ in thousands)
Net Interest Income
$
4,283
$
4,628
Other Income (Loss):
Realized gain (loss), net
12,145
(3,560
)
Unrealized gain (loss), net
(38,903
)
(7,120
)
Gain (loss) on derivative instruments,
net
6,936
(167
)
Other, net
(145
)
41
Other Income (Loss)
(19,967
)
(10,806
)
Total Expenses
6,497
6,411
Income (loss) before income taxes
(22,181
)
(12,589
)
Income tax provision (benefit)
56
118
Net income (loss)
$
(22,237
)
$
(12,707
)
Net income (loss) attributable to
non-controlling interest
3,616
(645
)
Net income (loss) attributable to common
stockholders and participating securities
$
(25,853
)
$
(12,062
)
Net income (loss) per Common Share –
Basic/Diluted
$
(0.43
)
$
(0.20
)
Non-GAAP Results
Distributable Earnings (1)
$
379
$
908
Distributable Earnings per Common Share –
Basic/Diluted(1)
$
0.01
$
0.01
Weighted average yield(2)(3)
3.74
%
4.02
%
Effective cost of funds(3)
3.41
%
3.65
%
Annualized net interest margin(2)(3)
0.85
%
0.96
%
(1)
For a reconciliation of GAAP Income to
Distributable Earnings, refer to page 16 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
Investment Activity
As of March 31, 2022, the Company owned an aggregate investment
portfolio with a fair market value totaling $2.6 billion. The
following table summarizes certain characteristics of our portfolio
by investment category as of March 31, 2022 (dollars in
thousands):
Investment Type
Balance at December 31,
2021
Purchases
Loan Modification/ Capitalized
Interest
Principal Payments and Basis
Recovery
Proceeds from Sales
Transfers to REO
Realized Gain/(Loss)
Unrealized Gain/(loss)
Premium and discount
amortization, net
Balance at March 31,
2022
Agency RMBS and Agency RMBS IOs
$
1,172
$
—
N/A
$
(76
)
$
—
N/A
$
—
$
(156
)
$
—
$
940
Non-Agency RMBS
27,769
39,952
N/A
(187
)
—
N/A
—
(3,425
)
102
64,211
Non-Agency CMBS
105,358
—
N/A
(644
)
—
N/A
—
974
(402
)
105,286
Other securities(1)
51,648
—
N/A
—
—
N/A
—
(2,374
)
(234
)
49,040
Total MBS and other securities
185,947
39,952
N/A
(907
)
—
N/A
—
(4,981
)
(534
)
219,477
Residential Whole Loans
1,023,502
119,093
64
(95,569
)
—
—
—
(41,843
)
(2,537
)
1,002,710
Residential Bridge Loans
5,428
—
—
(105
)
—
—
—
27
—
5,350
Commercial Loans
130,572
—
—
(4
)
—
—
—
(2,073
)
—
128,495
Securitized commercial loans
1,355,808
—
—
—
—
—
—
(73,564
)
6,699
1,288,943
Real Estate Owned
43,607
—
N/A
—
(54,681
)
—
12,198
—
N/A
1,124
Total Investments
$
2,744,864
$
159,045
$
64
$
(96,585
)
$
(54,681
)
$
—
$
12,198
$
(122,434
)
$
3,628
$
2,646,099
Portfolio Characteristics
Residential Real Estate Investments
The Company's focus on residential real estate related
investments will include but is not limited to non-qualified
residential whole loans ("Non-QM Loans"), non-agency RMBS, and
other related assets. The Company believes this focus will allow it
to address attractive market opportunities.
Residential Whole Loans
The Company's Residential Whole Loans have low LTV's and are
comprised of 2,505 Non-QM adjustable rate mortgages and six
investor fixed rate mortgages. The following table presents certain
information about our Residential Whole Loans investment portfolio
at March 31, 2022 (dollars in thousands):
Weighted Average
Current Coupon Rate
Number of Loans
Principal Balance
Original LTV
Original FICO Score(1)
Expected Life (years)
Contractual Maturity
(years)
Coupon Rate
2.01% – 3.00%
40
$
20,896
54.2
%
751
6.5
29.0
2.9
%
3.01% – 4.00%
543
266,264
61.1
%
744
4.4
27.9
3.7
%
4.01% – 5.00%
1,232
453,466
55.1
%
752
4.1
27.2
4.6
%
5.01% – 6.00%
668
260,311
63.8
%
741
3.7
26.7
5.4
%
6.01% – 7.00%
26
9,320
67.8
%
725
3.8
25.6
6.3
%
7.01% - 8.00%
2
430
73.7
%
748
3.2
26.5
7.1
%
Total
2,511
1,010,687
59.0
%
747
4.1
27.3
4.5
%
(1)
The original FICO score is not available
for 249 loans with a principal balance of approximately $83.2
million at March 31, 2022. We have excluded these loans from the
weighted average
The following table presents the aging of the Residential Whole
Loans as of March 31, 2022
Residential Whole
Loans
No of Loans
Principal
Fair Value
Current
2,479
$
994,489
$
986,712
1-30 days
16
7,247
7,250
31-60 days
2
824
766
61-90 days
1
536
509
90+ days
13
7,591
7,473
Total
2,511
$
1,010,687
$
1,002,710
Non-Agency RMBS
The following table presents the fair value and weighted average
purchase price for each of our Non-agency RMBS categories,
including IOs accounted for as derivatives, together with certain
of their respective underlying loan collateral attributes and
current performance metrics as of March 31, 2022 (fair value
dollars in thousands):
Weighted Average
Category
Fair Value
Purchase Price
Life (Years)
Original LTV
Original FICO
60+ Day Delinquent
CPR
Prime
$
44,095
$
91.87
9.6
46.4
%
535
0.9
%
15.5
%
Alt-A
20,116
65.31
19.1
69.9
%
641
14.4
%
13.3
%
Total
$
64,211
$
83.55
12.6
53.7
%
568
5.1
%
14.8
%
Commercial Real Estate Investments
Non-Agency CMBS
The following table presents certain characteristics of our
Non-Agency CMBS portfolio as of March 31, 2022 (dollars in
thousands):
Principal
Weighted Average
Type
Vintage
Balance
Fair Value
Life (Years)
Original LTV
Conduit:
2006-2009
$
164
$
159
1.9
83.7
%
2010-2020
78,776
21,691
4.4
62.8
%
78,940
21,850
4.4
62.9
%
Single Asset:
2010-2020
100,034
83,436
1.7
65.3
%
Total
$
178,974
$
105,286
2.2
64.8
%
The Company's Commercial Loans and Non-Agency CMBS portfolios
are performing according to expectations under the current market
conditions. The Company believes there is a reasonable likelihood
that many of the delinquent loans that serve as collateral for the
Non-Agency CMBS will return to performing status in the coming
months as the economy continues to reopen. However, there is no
assurance that this will be the case.
Commercial Loans
The following table presents our commercial loan investments as
of March 31, 2022 (dollars in thousands):
Loan
Loan Type
Principal Balance
Fair Value
Original LTV
Interest Rate
Maturity Date
Extension Option
Collateral
Geographic Location
CRE 3
Interest-Only Mezzanine loan
$
90,000
$
27,060
58
%
1-Month LIBOR plus 9.25%
6/29/2021
None(1)
Entertainment and Retail
NJ
CRE 4
Interest-Only First Mortgage
38,367
38,229
63
%
1-Month LIBOR plus 3.02%
8/6/2022
A One-Year Extension
Retail
CT
CRE 5
Interest-Only First Mortgage
24,535
24,242
62
%
1-Month LIBOR plus 3.75%
11/6/2022
Two One-Year Extensions
Hotel
NY
CRE 6
Interest-Only First Mortgage
13,207
13,049
62
%
1-Month LIBOR plus 3.75%
11/6/2022
Two One-Year Extensions
Hotel
CA
CRE 7
Interest-Only First Mortgage
7,259
7,172
62
%
1-Month LIBOR plus 3.75%
11/6/2022
Two One-Year Extensions
Hotel
IL, FL
CRE 8
Interest-Only First Mortgage
4,425
4,381
79
%
1-Month LIBOR plus 4.85%
12/6/2022
None
Assisted Living Facilities
FL
SBC 3
Interest-Only First Mortgage
14,362
14,362
49
%
1-Month LIBOR plus 4.10%
7/6/2022
None
Nursing Facilities
CT
$
192,155
$
128,495
(1)
CRE 3 is in default and not eligible for
extension
Non-Performing Commercial Loan
The impact of COVID-19 pandemic has adversely impacted a broad
range of industries in which our commercial loan borrowers operate
and could impair their ability to fulfill their financial
obligations to us, most significantly retail and hospitality
assets. All but the one loan discussed below remain current.
CRE 3 Loan
As of March 31, 2022, the CRE 3 junior mezzanine loan with an
outstanding principal balance of $90.0 million secured by a retail
facility was non-performing and past its maturity date of June 29,
2021. We were receiving interest payments on this loan from a
reserve that was exhausted in May 2021. We are 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 we would be repaid any amount of
the loan and we may suffer further declines in fair value with
respect to the mezzanine investment. We could experience a total
loss of our investment under various scenarios, which at current
levels would result in a $27.1 million reduction in the Company’s
book value. Refer to Note 6 - "Commercial Loans" for details.
Commercial Real Estate Owned
In February 2022, we and the other investors sold the
unencumbered hotel property for $55.9 million which was foreclosed
on in the third quarter of 2021. We and the other investors fully
recovered our aggregate initial investment of $42.0 million. We
recognized a gain on sale of approximately $12.2 million of which
the Company's share of the gain on sale of the property was
approximately $8.7 million.
PORTFOLIO FINANCING AND HEDGING
Financing
The following table sets forth additional information regarding
the Company’s portfolio financing arrangements as of March 31, 2022
(dollars in thousands):
Securities Pledged
Repurchase Agreement
Borrowings
Weighted Average Interest Rate
on Borrowings Outstanding at end of period
Weighted Average
Remaining Maturity
(days)
Short-Term Borrowings:
Agency RMBS
$
354
1.13
%
32
Non-Agency RMBS(1)
54,388
2.33
%
11
Residential Whole Loans (2)
1,322
2.95
%
28
Residential Bridge Loans (2)
4,231
2.95
%
28
Commercial Loans (2)
6,463
3.56
%
28
Other Securities
2,410
3.49
%
18
Total short term borrowings
69,168
2.53
%
15
Long Term Borrowings:
Non-Agency CMBS and
Non-Agency RMBS Facility
Non-Agency CMBS (1)
56,486
2.14
%
35
Non-Agency RMBS
16,451
2.15
%
35
Other Securities
27,506
2.22
%
35
Subtotal
100,443
2.17
%
35
Residential Whole
Loan Facility
Residential Whole Loans (2)
109,111
2.25
%
218
Commercial Whole
Loan Facility
Commercial Loans
63,658
2.27
%
178
Total long term borrowings
273,212
2.22
%
141
Repurchase agreements borrowings
$
342,380
2.29
%
116
(1)
Includes repurchase agreement borrowings
on securities eliminated upon VIE consolidation.
(2)
Repurchase agreement borrowings on loans
owned are through trust certificates. The trust certificates are
eliminated in consolidation.
Residential Whole Loan Facility
As of March 31, 2022, the Company had approximately outstanding
borrowings of $109.1 million, with a weighed average interest rate
of 2.25%. The borrowings are secured by $120.2 million in non QM
loans.
Commercial Whole Loan Facility
As of March 31, 2022, the Company had approximately $63.7
million in borrowings, with a weighted average interest rate of
2.27% under its commercial whole loan facility. The borrowing is
secured by loans with an estimated fair market value of $87.1
million as of March 31, 2022. On April 29, 2022, the Company
extended the maturity date of the facility to May 30, 2022.
Non-Agency CMBS and Non-Agency RMBS Facility
As of March 31, 2022, the outstanding balance under the
Company's Non-Agency CMBS and Non-Agency RMBS financing facility
was $100.4 million with a weighted average interest rate of 2.17%.
The facility matures on May 5, 2022, with two one-year extension
options. The borrowing is secured by investments with an estimated
fair market value of $173.7 million as of March 31, 2022. On May 2,
2022, the Company extended the maturity date of the facility for
one-year to May 2, 2023.
Convertible Senior Unsecured Notes
2022 Notes
As of March 31, 2022, we had $34.3 million of the 2022 Notes
outstanding. The 2022 Notes mature on October 1, 2022, unless
earlier converted, redeemed or repurchased by the holders pursuant
to their terms, and are not redeemable by us except during the
final three months prior to maturity.
2024 Notes
As of March 31, 2022, we had $86.3 million aggregate principal
amount of the 2024 Notes outstanding. The 2024 notes mature on
September 15, 2024, unless earlier converted, redeemed or
repurchased by the holders pursuant to their terms, and are not
redeemable by us except during the final three months prior to
maturity.
Residential Mortgage-Backed Notes
The Company has completed three Residential Whole Loan
securitizations. The mortgage-backed notes issued are non-recourse
to the Company and effectively finance $880.9 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
March 31, 2022 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1
$
234,900
3.3%
$
234,900
4/25/2049
Class A-2
12,598
3.5%
12,598
4/25/2049
Class A-3
19,959
3.8%
19,959
4/25/2049
Class M-1
25,055
4.8%
25,055
4/25/2049
292,512
292,512
Less: Unamortized Deferred Financing
Cost
N/A
3,280
Total
$
292,512
$
289,232
The Company retained the subordinate bonds and these bonds had a
fair market value of $30.8 million at March 31, 2022. 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
March 31, 2022 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1A
$
96,193
1.7%
$
96,193
3/25/2055
Class A-1B
11,414
2.1%
11,414
3/25/2055
Class A-2
13,518
2.9%
13,518
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
150,827
150,827
Less: Unamortized Deferred Financing
Costs
N/A
1,910
Total
$
150,827
$
148,917
The Company retained the subordinate bonds and these bonds had a
fair market value of $22.3 million at March 31, 2022. The retained
Arroyo 2020-1 subordinate bonds are eliminated in
consolidation.
Arroyo 2022-1
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2022-1 securitization trust at
March 31, 2022 (dollars in thousands):
Classes
Principal Balance
Coupon
Fair Value
Contractual Maturity
Offered Notes:
Class A-1A
$
238,419
2.5%
$
232,676
12/25/2056
Class A-1B
82,942
3.3%
79,703
12/25/2056
Class A-2
21,168
3.6%
20,381
12/25/2056
Class A-3
28,079
3.7%
26,918
12/25/2056
Class M-1
17,928
3.7%
16,744
12/25/2056
Total
$
388,536
$
376,422
The Company retained the subordinate bonds and these bonds had a
fair market value of $37.9 million at March 31, 2022. The retained
Arroyo 2022-1 subordinate bonds are eliminated in
consolidation.
Commercial Mortgage-Backed Notes
CSMC 2014 USA
The following table summarizes CSMC 2014 USA's commercial
mortgage pass-through certificates at March 31, 2022 (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%
$
117,768
9/11/2025
Class A-2
531,700
4.0%
523,078
9/11/2025
Class B
136,400
4.2%
126,957
9/11/2025
Class C
94,500
4.3%
86,707
9/11/2025
Class D
153,950
4.4%
142,388
9/11/2025
Class E
180,150
4.4%
152,369
9/11/2025
Class F
153,600
4.4%
113,725
9/11/2025
Class X-1(1)
N/A
0.7%
12,347
9/11/2025
Class X-2(1)
N/A
0.2%
2,572
9/11/2025
$
1,370,691
$
1,277,911
(1)
Class X-1 and X-2 are interest-only
classes with notional balances of $652.1 million and $733.5 million
as of March 31, 2022, 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 Class F
bonds represents a controlling financial interest, which resulted
in consolidation of the trust. The bond had a fair market value of
$11.0 million at March 31, 2022. 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
March 31, 2022, 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 March 31, 2022 (dollars in thousands):
Other Derivative Instruments
Notional Amount
Fair Value
Credit default swaps, asset
$
4,140
$
3,602
Total derivative instruments, assets
3,602
Interest rate swaps, liability
$
252,000
$
(487
)
Credit default swaps, liability
2,030
(1,848
)
Total derivative instruments,
liabilities
(2,335
)
Total derivative instruments, net
$
1,267
DIVIDEND
For the quarter ended March 31, 2022, we declared a $0.04
dividend per share, generating a dividend yield of approximately
9.4% based on the stock closing price of $1.71 at March 31,
2022.
CONFERENCE CALL
The Company will host a conference call with a live webcast
tomorrow, May 6, 2022 at 11:00 a.m. Eastern Time/8:00 a.m. Pacific
Time, to discuss financial results for the first quarter 2022.
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/10165213/f228a42b7c 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 May 13, 2022 by
dialing (877) 344-7529 from the United States, or (412) 317-0088
from outside the United States, and entering conference ID 5212733.
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,
Non-Agency RMBS and to a lesser extent GSE Risk Transfer
Securities, Commercial Loans, Non-Agency CMBS, 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, 2021 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, distributable 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)
March 31, 2022
December 31, 2021
Assets:
Cash and cash equivalents
$
42,849
$
40,193
Restricted cash
257
260
Agency mortgage-backed securities, at fair
value ($300 and $1,172 pledged as collateral, at fair value,
respectively)
940
1,172
Non-Agency mortgage-backed securities, at
fair value ($142,665 and $123,947 pledged as collateral, at fair
value, respectively)
169,497
133,127
Other securities, at fair value ($49,040
and $51,648 pledged as collateral, at fair value, respectively)
49,040
51,648
Residential Whole Loans, at fair value
($1,002,710 and $1,023,502 pledged as collateral, at fair value,
respectively)
1,002,710
1,023,502
Residential Bridge Loans, at fair value
($5,129 and $5,207 pledged as collateral, at fair value,
respectively)
5,350
5,428
Securitized commercial loans, at fair
value
1,288,943
1,355,808
Commercial Loans, at fair value ($101,435
and $101,459 pledged as collateral, at fair value,
respectively)
128,495
130,572
Investment related receivable
20,882
22,133
Interest receivable
10,960
11,823
Due from counterparties
8,819
4,565
Derivative assets, at fair value
3,602
105
Other assets
2,265
45,364
Total Assets (1)
$
2,734,609
$
2,825,700
Liabilities and Stockholders’ Equity:
Liabilities:
Repurchase agreements, net
$
342,380
$
617,189
Convertible senior unsecured notes,
net
116,347
119,168
Securitized debt, net ($1,654,333 and
$1,344,370 at fair value and $171,013 and $180,116 held by
affiliates, respectively)
2,092,482
1,863,488
Interest payable (includes $699 and $699
on securitized debt held by affiliates, respectively)
8,241
10,272
Derivative liability, at fair value
2,335
602
Accounts payable and accrued expenses
2,277
4,842
Payable to affiliate
2,691
1,925
Dividend payable
2,415
3,623
Other liabilities
291
262
Total Liabilities (2)
2,569,459
2,621,371
Commitments and contingencies
Stockholders’ Equity:
Common stock: $0.01 par value, 500,000,000
shares authorized, 60,380,105 and 60,380,105 outstanding,
respectively
609
609
Preferred stock, $0.01 par value,
100,000,000 shares authorized and no shares outstanding
—
—
Treasury stock, at cost, 579,808 and
579,808 shares held, respectively
(1,665
)
(1,665
)
Additional paid-in capital
918,325
918,146
Retained earnings (accumulated
deficit)
(752,263
)
(723,981
)
Total Stockholders’ Equity
165,006
193,109
Non-controlling interest
144
11,220
Total Equity
165,150
204,329
Total Liabilities and Equity
$
2,734,609
$
2,825,700
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Balance Sheets
(Continued)
(in thousands—except share and
per share data)
(Unaudited)
March 31, 2022
December 31, 2021
(1) Assets of consolidated VIEs included
in the total assets above:
Cash and cash equivalents
$
—
$
266
Restricted Cash
257
260
Residential Whole Loans, at fair value
($1,002,710 and $1,023,502 pledged as collateral, at fair value,
respectively)
1,002,710
1,023,502
Residential Bridge Loans, at fair value
($5,129 and $5,207 pledged as collateral, at fair value,
respectively)
5,129
5,207
Securitized commercial loans, at fair
value
1,288,943
1,355,808
Commercial Loans, at fair value ($14,362
and $14,362 pledged as collateral, at fair value, respectively)
14,362
14,362
Investment related receivable
20,836
22,087
Interest receivable
9,539
10,572
Total assets of consolidated VIEs
$
2,341,776
$
2,432,064
(2) Liabilities of consolidated VIEs
included in the total liabilities above:
Securitized debt, net ($1,654,333 and
$1,344,370 at fair value and $171,013 and $180,116 held by
affiliates, respectively)
$
2,092,482
$
1,863,488
Interest payable (includes $699 and $699
on securitized debt held by affiliates, respectively)
7,222
6,480
Accounts payable and accrued expenses
75
78
Other liabilities
257
260
Total liabilities of consolidated VIEs
$
2,100,036
$
1,870,306
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Statements of
Operations
(in thousands—except share and
per share data)
(Unaudited)
Three months ended
March 31, 2022
December 31, 2021
Net Interest Income
Interest income
$
35,642
$
36,718
Interest expense
31,359
32,090
Net Interest Income
4,283
4,628
Other Income (Loss)
Realized gain (loss), net
12,145
(3,560
)
Unrealized gain (loss), net
(38,903
)
(7,120
)
Gain (loss) on derivative instruments,
net
6,936
(167
)
Other, net
(145
)
41
Other Income (Loss)
(19,967
)
(10,806
)
Expenses
Management fee to affiliate
1,100
1,468
Other operating expenses
296
334
Transaction costs
2,611
2,282
General and administrative expenses:
Compensation expense
498
586
Professional fees
1,256
1,026
Other general and administrative
expenses
736
715
Total general and administrative
expenses
2,490
2,327
Total Expenses
6,497
6,411
Income (loss) before income
taxes
(22,181
)
(12,589
)
Income tax provision (benefit)
56
118
Net income (loss)
(22,237
)
(12,707
)
Net (loss) income attributable to
non-controlling interest
3,616
(645
)
Net income (loss) attributable to
common stockholders and participating securities
$
(25,853
)
$
(12,062
)
Net income (loss) per Common Share –
Basic
$
(0.43
)
$
(0.20
)
Net income (loss) per Common Share –
Diluted
$
(0.43
)
$
(0.20
)
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 March 31, 2022, and December 31,
2021:
Three months ended
(dollars in thousands)
March 31, 2022
December 31, 2021
Net income (loss) attributable to common
stockholders and participating securities
$
(25,853
)
$
(12,062
)
Income tax provision (benefit)
56
118
Net income (loss) before income taxes
(25,797
)
(11,944
)
Adjustments:
Investments:
Unrealized (gain) loss on investments,
securitized debt and other liabilities
38,903
7,120
Realized (gain) loss on sale of
investments
(8,713
)
3,388
One-time transaction costs
2,740
1,634
Derivative Instruments:
Net realized (gain) loss on
derivatives
(5,540
)
30
Net unrealized (gain) loss on
derivatives
(1,655
)
111
Other:
Realized (gain) loss on extinguishment of
convertible senior unsecured notes
53
172
Amortization of discount on convertible
senior unsecured notes
223
232
Non-cash stock-based compensation
165
165
Total adjustments
26,176
12,852
Distributable Earnings
$
379
$
908
Basic and Diluted Distributable Earnings
per Common Share and Participating Securities
$
0.01
$
0.01
Basic weighted average common shares and
participating securities
60,718,814
61,087,544
Diluted weighted average common shares and
participating securities
60,718,814
61,087,544
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)
March 31, 2022
December 31, 2021
Net interest income
$
4,283
$
4,628
Interest income from IOs and IIOs
accounted for as derivatives
17
21
Net interest income from interest rate
swaps
(291
)
(63
)
Adjusted net interest income
4,009
4,586
Total expenses
(6,497
)
(6,411
)
Non-cash stock-based compensation
165
165
One-time transaction costs
2,740
1,634
Amortization of discount on convertible
unsecured senior notes
223
232
Interest income on cash balances and other
income (loss), net
(130
)
57
Income attributable to non-controlling
interest
(131
)
645
Distributable Earnings
$
379
$
908
Reconciliation of GAAP Book
Value to Non-GAAP Economic Book Value
(dollars in thousands)
(Unaudited)
March 31, 2022
$ Amount
Per Share
GAAP Book Value at December 31,
2021
$
193,109
$
3.20
Common dividend
(2,415
)
(0.04
)
190,694
3.16
Portfolio Income (Loss)
Net Interest Margin
3,863
0.06
Realized gain (loss), net
14,216
0.24
Unrealized gain (loss), net
(37,249
)
(0.62
)
Net portfolio income (loss)
(19,170
)
(0.32
)
Operating expenses
(4,137
)
(0.07
)
General and administrative expenses,
excluding equity based compensation
(2,325
)
(0.04
)
Provision for taxes
(56
)
—
GAAP Book Value at March 31,
2022
$
165,006
$
2.73
Adjustments to deconsolidate VIEs and
reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets
(2,197,379
)
(36.39
)
Deconsolidation VIEs liabilities
2,099,721
34.78
Interest in securities of VIEs owned, at
fair value
102,031
1.69
Economic Book Value at March 31,
2022
$
169,379
$
2.81
"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
(CSMC USA, Arroyo 2019-2, Arroyo 2020-1 and Arroyo 2022-1) 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 (CSMC USA, Arroyo 2019-2, Arroyo 2020-1
and Arroyo 2022-1). 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 March 31, 2022, and December 31, 2021:
Three months ended
March 31, 2022
December 31, 2021
(dollars in thousands)
Reconciliation
Cost of Funds/Effective
Borrowing Costs
Reconciliation
Cost of Funds/Effective
Borrowing Costs
Interest expense
$
31,359
4.99
%
$
32,090
5.07
%
Adjustments:
Interest expense on Securitized debt from
consolidated VIEs(1)
(20,829
)
(6.71
)%
(20,578
)
6.51
%
Net interest paid - interest rate
swaps
291
0.05
%
63
0.10
%
Effective Cost of Funds
$
10,821
3.41
%
$
11,575
3.65
%
Weighted average borrowings
$
1,288,592
$
1,256,859
(1)
Excludes third-party sponsored securitized
debt interest expense.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220505006065/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
Western Asset Mortgage C... (NYSE:WMC)
Historical Stock Chart
From Aug 2024 to Sep 2024
Western Asset Mortgage C... (NYSE:WMC)
Historical Stock Chart
From Sep 2023 to Sep 2024