Conference Call and Webcast Scheduled for
Tomorrow, August 9, 2023 at 11:00 a.m. Eastern Time/8:00 a.m.
Pacific Time
Western Asset Mortgage Capital Corporation (the “Company,” “we,”
or “WMC”) (NYSE: WMC) today reported its results for the second
quarter ended June 30, 2023.
BUSINESS UPDATE
The Company continues to execute on its business strategy to
take actions to strengthen its balance sheet:
- For the three months ended June 30, 2023:
- the Company received $28.4 million from the sale or repayment
of Residential Whole Loans and Non-Agency RMBS;
- the Company received $1.1 million from the repayment or paydown
of Commercial Whole Loans, Non-Agency CMBS, and Other Securities;
and
- the Company received $8.7 million in proceeds from the sale of
Other Securities.
- Subsequent to quarter end, the Company replaced an existing
short-term repurchase financing facility facing Credit Suisse AG
(UBS) with a new two-year term, $65 million fixed rate,
non-mark-to-market securitized funding vehicle. As a result, the
Company no longer has any financing arrangements with Credit Suisse
AG (UBS) as a counterparty.
SECOND QUARTER 2023 FINANCIAL RESULTS
The rising and volatile interest rate environment negatively
impacted our second quarter GAAP financial results. Key measures
for the quarter were as follows:
- GAAP book value per share was $14.69 at June 30, 2023.
- Economic book value(1) per share of $18.54 at June 30,
2023.
- GAAP net loss attributable to common shareholders and
participating securities of $8.6 million, or $1.44 per share.
- Distributable Earnings(1) of $1.3 million, or $0.22 per basic
and diluted share.
- Economic return(1)(2) on book value was negative 8.6% for the
quarter.
- Economic return(1)(2) on economic book value was 7.7% for the
quarter.
- 1.2% annualized net interest margin(1)(3)(4) on our investment
portfolio.
- 2.6x recourse leverage as of June 30, 2023.
- On June 21, 2023, we declared a second quarter common dividend
of $0.35 per share.
(1)
Non-GAAP measure. Refer to pages
15 through 18 of this press release for reconciliations.
(2)
Economic return is calculated by taking
the sum of: (i) the total dividends declared and (ii) the change in
book value during the period, divided by beginning book value.
(3)
Includes interest-only securities
accounted for as derivatives.
(4)
Excludes the consolidation of VIE
trusts required under GAAP.
OPERATING RESULTS
The below table reflects a summary of our
operating results:
For the Three Months
Ended
June 30, 2023
March 31, 2023
GAAP
Results
($ in thousands)
Net Interest Income
$
4,010
$
4,355
Other Income (Loss):
Realized gain (loss), net
(1,099
)
(82,818
)
Unrealized gain (loss), net
(6,854
)
90,316
Gain (loss) on derivative instruments,
net
1,014
(950
)
Other, net
186
57
Other Income (Loss)
(6,753
)
6,605
Total Expenses
5,899
4,380
Income (loss) before income taxes
(8,642
)
6,581
Income tax provision (benefit)
(12
)
12
Net income (loss)
$
(8,630
)
$
6,569
Net income (loss) attributable to
non-controlling interest
3
1
Net income (loss) attributable to common
stockholders and participating securities
$
(8,633
)
$
6,568
Net income (loss) per Common Share –
Basic/Diluted
$
(1.44
)
$
1.07
Non-GAAP
Results
Distributable Earnings(1)
$
1,328
$
2,018
Distributable Earnings per Common Share –
Basic/Diluted
$
0.22
$
0.33
Weighted average yield(2)(3)
5.20
%
5.02
%
Effective cost of funds(3)
4.58
%
4.46
%
Annualized net interest margin(2)(3)
1.20
%
1.24
%
(1) For a reconciliation of GAAP Income to
Distributable Earnings, refer to page 15 of this press release.
(2) Includes interest-only securities
accounted for as derivatives.
(3) Excludes the consolidation of VIE
trusts required under GAAP.
MANAGEMENT COMMENTARY
“During the second quarter, we remained focused on strengthening
our balance sheet and increasing our liquidity,” said Bonnie
Wongtrakool, Chief Executive Officer of the Company. “Our second
quarter results declined sequentially from the first quarter,
driven by lower earnings and reduced prices across portions of our
portfolio as rates rose. We also received approximately $38.1
million from the sale of, repayment or paydowns of investments and
used the majority of these proceeds to further reduce recourse
debt.
“For the second quarter, our GAAP book value per share decreased
10.8% from the prior quarter, while economic book value per share
increased 5.7%. We generated lower net interest income during the
quarter, driven by a lower net interest margin and lower income
from our interest rate swap positions, while our operating expenses
increased sequentially from the prior quarter, primarily due to
one-time expenses related to our strategic review process.
Consequently, our distributable earnings of $1.3 million, or $0.22
per share, in the second quarter, were down $846 thousand, or
38.9%, from the first quarter.”
Greg Handler, Chief Investment Officer of the Company, added,
“We remained focused on maximizing the value of our portfolio and
increasing our total liquidity. During the quarter, we received
payoffs in our residential whole loan and exited some of our
non-agency investments. A combination of higher interest rates and
spread widening in commercial mortgages put pressure on the GAAP
value of our residential whole loan portfolio and some of our
commercial assets. We continue to focus on monetizing our
commercial holdings in a disciplined manner with the goal of
strengthening our balance sheet and improving our liquidity.”
INVESTMENT PORTFOLIO
Investment Activity
As of June 30, 2023, the Company owned an aggregate investment
portfolio with a fair market value totaling $2.2 billion. The
following table summarizes certain characteristics of our portfolio
by investment category as of June 30, 2023 (dollars in
thousands):
Balance at
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
Investment Type
December 31, 2022
Purchases
June 30, 2023
Agency RMBS and Agency RMBS IOs
$
767
$
—
N/A
$
4
$
—
N/A
$
—
$
67
$
—
$
838
Non-Agency RMBS
23,687
—
N/A
(264
)
—
N/A
(48
)
128
(139
)
23,364
Non-Agency CMBS
85,435
—
N/A
(20,559
)
—
N/A
(1,239
)
(4,970
)
655
59,322
Other securities(1)
27,262
4,714
N/A
—
(15,324
)
N/A
(1,379
)
1,543
(201
)
16,615
Total MBS and other securities
137,151
4,714
N/A
(20,819
)
(15,324
)
N/A
(2,666
)
(3,232
)
315
100,139
Residential Whole Loans
1,091,145
—
41
(58,792
)
—
—
—
6,444
(1,457
)
1,037,381
Residential Bridge Loans
2,849
—
—
(75
)
—
—
—
8
—
2,782
Commercial Loans
90,002
—
—
(1,680
)
(8,776
)
—
(81,223
)
80,417
66
78,806
Securitized commercial loans
1,085,103
—
—
—
—
—
—
(74,050
)
14,268
1,025,321
Real Estate Owned
2,255
—
N/A
—
28
—
(28
)
—
N/A
2,255
Total Investments
$
2,408,505
$
4,714
$
41
$
(81,366
)
$
(24,072
)
$
—
$
(83,917
)
$
9,587
$
13,192
$
2,246,684
(1) At June 30, 2023 other securities
include GSE Credit Risk Transfer Securities with an estimated fair
value of $15.4 million and Student Loan ABS with a fair value of
$1.2 million.
Portfolio Characteristics
Residential Real Estate Investments
The Company's focus on residential real estate related
investments includes 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 allows it to
address attractive market opportunities.
Residential Whole Loans
The Company's Residential Whole Loans have low LTV's and are
comprised of 2,824 adjustable and fixed rate Non-QM and investor
mortgages. The following table presents certain information about
our Residential Whole Loans investment portfolio at June 30, 2023
(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%
39
$
22,018
66.3
%
758
8.9
27.8
2.9
%
3.01% – 4.00%
366
200,548
66.9
%
760
7.5
28.3
3.7
%
4.01% – 5.00%
1,236
417,820
64.5
%
750
5.7
25.7
4.6
%
5.01% – 6.00%
875
347,001
65.5
%
742
4.8
26.2
5.5
%
6.01% – 7.00%
282
110,986
68.1
%
742
3.6
27.2
6.4
%
7.01% - 8.00%
25
8,173
68.3
%
735
3.4
26.5
7.4
%
Total
2,824
1,106,551
65.7
%
749
5.5
26.5
4.9
%
(1) The original FICO score is not
available for 219 loans with a principal balance of approximately
$69.4 million at June 30, 2023. We have excluded these loans from
the weighted average.
The following table presents the aging of the Residential Whole
Loans as of June 30, 2023 (dollars in thousands):
Residential Whole
Loans
No of Loans
Principal
Fair Value
Current
2,779
$
1,082,536
$
1,014,645
1-30 days
20
10,339
9,984
31-60 days
10
4,546
4,231
61-90 days
—
—
—
90+ days
15
9,130
8,521
Total
2,824
$
1,106,551
$
1,037,381
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 June 30, 2023 (fair value dollars
in thousands):
Weighted Average
Category
Fair Value
Purchase
Price
Life (Years)
Original LTV
Original
FICO
60+ Day
Delinquent
CPR
Prime
$
11,770
$
81.81
11.6
67.6
%
747
1.0
%
16.8
%
Alt-A
11,594
48.30
18.5
81.3
%
661
17.5
%
6.0
%
Total
$
23,364
$
65.18
15.0
74.4
%
704
9.2
%
11.4
%
Commercial Real Estate Investments
Non-Agency CMBS
The following table presents certain characteristics of our
Non-Agency CMBS portfolio as of June 30, 2023 (dollars in
thousands):
Principal
Weighted Average
Type
Vintage
Balance
Fair Value
Life (Years)
Original LTV
Conduit:
2006-2009
$
68
$
66
0.6
88.7
%
2010-2020
14,982
10,085
5.6
62.6
%
15,050
10,151
5.5
62.8
%
Single Asset:
2010-2020
73,609
49,171
1.6
66.1
%
Total
$
88,659
$
59,322
2.3
65.5
%
Commercial Loans
The following table presents our commercial loan investments as
of June 30, 2023 (dollars in thousands):
Loan
Loan Type
Principal Balance
Fair Value
Original LTV
Interest Rate
Maturity Date
Extension Option
Collateral
Geographic Location
CRE 4
Interest-Only First Mortgage
22,204
22,053
63%
1-Month SOFR plus 3.38%
8/6/2025(1)
None
Retail
CT
CRE 5
Interest-Only First Mortgage
24,535
23,993
62%
1-Month SOFR plus 4.95%
11/6/2023(2)
One - 12 month extension
Hotel
NY
CRE 6
Interest-Only First Mortgage
13,207
12,914
62%
1-Month SOFR plus 4.95%
11/6/2023(2)
One - 12 month extension
Hotel
CA
CRE 7
Interest-Only First Mortgage
7,259
7,099
62%
1-Month SOFR plus 4.95%
11/6/2023(2)
One - 12 month extension
Hotel
IL, FL
SBC 3(3)
Interest-Only First Mortgage
12,750
12,747
49%
1-Month SOFR plus 5.50%
8/4/2023
One - 3 month extension
Nursing Facilities
CT
$ 79,955
$ 78,806
(1) In August 2022, CRE 4 was extended
three years through August 6, 2025, with a principal pay down of
$16.2 million.
(2) In November 2022, CRE 5, 6, and 7 were
each extended for one year through November 6, 2023.
(3) In January 2023, the SBC 3 loan was
partially paid down by $862 thousand to bring the unpaid principal
balance to $13.5 million, and the maturity date was extended
through May 5, 2023 for a 50 bps extension fee and the margin was
increased from 4.47% to 5.00%. In May 2023, the SBC 3 loan was
partially paid down by $750 thousand to bring the unpaid principal
to $12.8 million, the maturity date was extended through August 4,
2023, and the margin was increased from 5.00% to 5.50%. In July
2023, the SBC 3 loan was partially paid down by $250 thousand to
bring the unpaid principal balance to $12.5 million, and extended
the maturity date through October 4, 2023 for a 25 bps extension
fee. The borrower under this loan may, at its option, extend the
October 4, 2023 maturity date for an additional period of three
months through December 31, 2023, with an additional required
paydown of $250 thousand and a 25 bps extension fee.
PORTFOLIO FINANCING AND HEDGING
Financing
The following table sets forth additional information regarding
the Company’s portfolio financing arrangements as of June 30, 2023
(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
$
274
5.84
%
32
Non-Agency RMBS(1)
35,105
8.24
%
25
Residential Whole Loans(2)
—
—
%
0
Residential Bridge Loans(2)
—
—
%
0
Commercial Loans(2)
—
—
%
0
Other Securities
—
—
%
0
Total short term borrowings
35,379
8.22
%
25
Long Term Borrowings:
Non-Agency CMBS and
Non-Agency RMBS Facility
Non-Agency CMBS(1)
36,720
7.61
%
307
Non-Agency RMBS
14,467
7.60
%
307
Other Securities
8,861
7.94
%
307
Subtotal
60,048
7.65
%
307
Residential Whole
Loan Facility
Residential Whole Loans(2)
4,401
7.32
%
117
Commercial Whole
Loan Facility
Commercial Loans
48,032
7.32
%
126
Total long term borrowings
112,481
7.50
%
222
Repurchase agreements borrowings
$
147,860
7.67
%
175
(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
The facility finances non-securitized, Non-QM Residential Whole
Loans. It matures on October 25, 2023 and bears interest at a rate
of SOFR plus 2.25%, with a SOFR floor of 0.25%. As of June 30,
2023, the Company had outstanding borrowings of $4.4 million. The
borrowings are secured by $3.4 million in non-QM loans and one REO
property with a carrying value of $2.3 million as of June 30,
2023.
Non-Agency CMBS and Non-Agency RMBS Facility
The facility started on May 2, 2023 and matures in May 2024. It
bears interest at a weighted average rate of SOFR plus 2.5%. As of
June 30, 2023, the outstanding balance under this facility was
$60.0 million. The borrowings are secured by investments with an
estimated fair market value of $95.0 million as of June 30,
2023.
Commercial Whole Loan Facility
The facility matures on November 3, 2023 and bears interest at a
rate of SOFR plus 2.25%. As of June 30, 2023, the outstanding
balance under this facility was $48.0 million. The borrowings are
secured by the performing commercial loans, with an estimated fair
market value of $66.1 million as of June 30, 2023.
Convertible Senior Unsecured Notes
6.75% Convertible Senior Unsecured Notes due 2024 (the “2024
Notes”)
As of June 30, 2023, the Company 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
As of June 30, 2023, the Company has completed four Residential
Whole Loan securitizations. The mortgage-backed notes issued are
non-recourse to the Company and effectively finance $1.0 billion of
Residential Whole Loans as of June 30, 2023.
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, 2023 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1
$
152,658
3.3
%
$
152,658
4/25/2049
Class A-2
8,187
3.5
%
8,187
4/25/2049
Class A-3
12,971
3.8
%
12,971
4/25/2049
Class M-1
25,055
4.8
%
25,055
4/25/2049
198,871
198,871
Less: Unamortized Deferred Financing
Cost
N/A
2,159
Total
$
198,871
$
196,712
The Company retained the subordinate bonds and these bonds had a
fair market value of $40.9 million at June 30, 2023. 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, 2023 (dollars in thousands):
Classes
Principal Balance
Coupon
Carrying Value
Contractual Maturity
Offered Notes:
Class A-1A
$
68,514
1.7
%
$
68,514
3/25/2055
Class A-1B
8,130
2.1
%
8,130
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
119,864
119,864
Less: Unamortized Deferred Financing
Costs
N/A
1,299
Total
$
119,864
$
118,565
The Company retained the subordinate bonds and these bonds had a
fair market value of $26.9 million at June 30, 2023. 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
June 30, 2023 (dollars in thousands):
Classes
Principal Balance
Coupon
Fair Value
Contractual Maturity
Offered Notes:
Class A-1A
$
202,556
2.5
%
$
182,262
12/25/2056
Class A-1B
82,942
3.3
%
73,725
12/25/2056
Class A-2
21,168
3.6
%
17,292
12/25/2056
Class A-3
28,079
3.7
%
22,186
12/25/2056
Class M-1
17,928
3.7
%
12,780
12/25/2056
Total
$
352,673
$
308,245
The Company retained the subordinate bonds and these bonds had a
fair market value of $36.3 million at June 30, 2023. The retained
Arroyo 2022-1 subordinate bonds are eliminated in
consolidation.
Arroyo 2022-2
The following table summarizes the residential mortgage-backed
notes issued by the Company's Arroyo 2022-2 securitization trust at
June 30, 2023 (dollars in thousands):
Classes
Principal Balance
Coupon
Fair Value
Contractual Maturity
Offered Notes:
Class A-1
$
250,394
5.0
%
$
242,542
7/25/2057
Class A-2
21,314
5.0
%
20,239
7/25/2057
Class A-3
25,972
5.0
%
24,613
7/25/2057
Class M-1
17,694
5.0
%
14,680
7/25/2057
Subtotal
315,374
302,074
Less: Unamortized Deferred Financing
Costs
N/A
—
Total
$
315,374
$
302,074
The Company retained the subordinate bonds and these bonds had a
fair market value of $35.5 million at June 30, 2023. The retained
Arroyo 2022-2 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 June 30, 2023 (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
%
$
101,120
9/11/2025
Class A-2
531,700
4.0
%
458,329
9/11/2025
Class B
136,400
4.2
%
109,843
9/11/2025
Class C
94,500
4.3
%
72,535
9/11/2025
Class D
153,950
4.4
%
111,258
9/11/2025
Class E
180,150
4.4
%
97,328
9/11/2025
Class F
153,600
4.4
%
61,965
9/11/2025
Class X-1(1)
n/a
0.5
%
5,717
9/11/2025
Class X-2(1)
n/a
—
%
1,215
9/11/2025
$
1,370,691
$
1,019,310
(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, 2023, 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
$6.0 million at June 30, 2023. 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, 2023,
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, 2023 (dollars in thousands):
Other Derivative Instruments
Notional Amount
Fair Value
Interest rate swaps, asset
$
—
$
—
Credit default swaps, asset
$
—
$
—
TBA securities, asset
—
—
Other derivative instruments, assets
—
Interest rate swaps, liability
$
82,000
$
(68
)
Credit default swaps, liability
—
—
TBA securities, liability
—
—
Total other derivative instruments,
liabilities
(68
)
Total other derivative instruments,
net
$
(68
)
DIVIDEND
For the quarter ended June 30, 2023, the Company declared a
$0.35 dividend per share, generating a dividend yield of
approximately 15.8% based on the closing price of the Company's
common stock of $8.87 on June 30, 2023.
CONFERENCE CALL
The Company will host a conference call with a live webcast
tomorrow, August 9, 2023 at 11:00 a.m. Eastern Time/8:00 a.m.
Pacific Time, to discuss financial results for the second quarter
2023.
Individuals interested in listening to 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/10181420/fa0f39cc68 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 14, 2023 by
dialing (877) 344-7529 from the United States, or (412) 317-0088
from outside the United States, and entering conference ID 5150535.
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.
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, 2022 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,
Economic return on book/economic 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)
(dollars in thousands)
June 30, 2023
March 31, 2023
Assets:
Cash and cash equivalents
$
17,375
$
16,149
Restricted cash
—
—
Agency mortgage-backed securities, at fair
value ($278 and $249 pledged as collateral, at fair value,
respectively)
838
837
Non-Agency mortgage-backed securities, at
fair value ($73,572 and $100,115 pledged as collateral, at fair
value, respectively)
82,686
87,133
Other securities, at fair value ($15,375
and $27,262 pledged as collateral, at fair value, respectively)
16,615
24,857
Residential Whole Loans, at fair value
($1,036,385 and $1,089,914 pledged as collateral, at fair value,
respectively)
1,037,381
1,074,417
Residential Bridge Loans, at fair value
(None and none pledged as collateral, at fair value,
respectively)
2,782
2,782
Securitized commercial loans, at fair
value
1,025,321
1,088,224
Commercial Loans, at fair value ($66,059
and $66,864 pledged as collateral, at fair value, respectively)
78,806
79,182
Investment related receivable
8,806
8,980
Interest receivable
10,895
11,185
Due from counterparties
1,302
17,283
Derivative assets, at fair value
—
—
Other assets
4,542
3,366
Total Assets (1)
$
2,287,349
$
2,414,395
Liabilities and Stockholders’ Equity:
Liabilities:
Repurchase agreements, net
$
147,860
$
171,290
Convertible senior unsecured notes,
net
84,341
83,932
Securitized debt, net ($1,629,629 and
$1,719,865 at fair value and $115,793 and $128,217 held by
affiliates, respectively)
1,944,906
2,039,353
Interest payable (includes $635 and $655
on securitized debt held by affiliates, respectively)
10,216
12,139
Due to counterparties
—
—
Derivative liability, at fair value
68
121
Accounts payable and accrued expenses
5,246
3,140
Payable to affiliate
3,878
2,920
Dividend payable
2,113
2,113
Other liabilities
—
22
Total Liabilities (2)
2,198,628
2,315,030
Commitments and contingencies
Stockholders’ Equity:
Common stock: $0.01 par value, 50,000,000
shares authorized, 6,038,012 and 6,038,012 outstanding,
respectively
60
60
Preferred stock, $0.01 par value,
10,000,000 shares authorized and no shares outstanding
—
—
Treasury stock, at cost, 57,981 and 57,981
shares held, respectively
(1,665
)
(1,665
)
Additional paid-in capital
919,511
919,368
Retained earnings (accumulated
deficit)
(829,193
)
(818,405
)
Total Stockholders’ Equity
88,713
99,358
Non-controlling interest
8
7
Total Equity
88,721
99,365
Total Liabilities and Equity
$
2,287,349
$
2,414,395
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Balance Sheets
(Continued)
(in thousands—except share and
per share data)
(Unaudited)
(dollars in thousands)
June 30, 2023
March 31, 2023
(1) Assets of consolidated VIEs included
in the total assets above:
Cash and cash equivalents
$
—
$
—
Restricted Cash
—
—
Residential Whole Loans, at fair value
($1,036,385 and $1,089,914 pledged as collateral, at fair value,
respectively)
1,037,381
1,074,417
Residential Bridge Loans, at fair value
($0 and $0 pledged as collateral, at fair value, respectively)
2,782
2,782
Securitized commercial loans, at fair
value
1,025,321
1,088,224
Commercial Loans, at fair value (None and
none pledged as collateral, at fair value, respectively)
12,747
13,490
Investment related receivable
8,760
8,934
Interest receivable
9,798
10,099
Other assets
—
—
Total assets of consolidated VIEs
$
2,096,789
$
2,197,946
(2) Liabilities of consolidated VIEs
included in the total liabilities above:
Securitized debt, net ($1,629,629 and
$1,719,865 at fair value and $115,793 and $128,217 held by
affiliates, respectively)
$
1,944,906
$
2,039,353
Interest payable (includes $635 and $655
on securitized debt held by affiliates, respectively)
7,971
8,227
Accounts payable and accrued expenses
60
60
Other liabilities
—
—
Total liabilities of consolidated VIEs
$
1,952,937
$
2,047,640
Western Asset Mortgage Capital
Corporation and Subsidiaries
Consolidated Statements of
Operations
(in thousands—except share and
per share data)
(Unaudited)
Three months ended
(dollars in thousands)
June 30, 2023
March 31, 2023
Net Interest Income
Interest income
$
40,222
$
40,857
Interest expense
36,212
36,502
Net Interest Income
4,010
4,355
Other Income (Loss)
Realized gain (loss), net
(1,099
)
(82,818
)
Unrealized gain (loss), net
(6,854
)
90,316
Gain (loss) on derivative instruments,
net
1,014
(950
)
Other, net
186
57
Other Income (Loss)
(6,753
)
6,605
Expenses
Management fee to affiliate
958
976
Other operating expenses
293
286
Transaction costs
1,989
643
General and administrative expenses:
Compensation expense
504
511
Professional fees
1,550
1,415
Other general and administrative
expenses
605
549
Total general and administrative
expenses
2,659
2,475
Total Expenses
5,899
4,380
Income (loss) before income
taxes
(8,642
)
6,580
Income tax provision (benefit)
(12
)
12
Net income (loss)
(8,630
)
6,568
Net (loss) income attributable to
non-controlling interest
3
1
Net income (loss) attributable to
common stockholders and participating securities
$
(8,633
)
$
6,567
Net income (loss) per Common Share –
Basic
$
(1.44
)
$
1.07
Net income (loss) per Common Share –
Diluted
$
(1.44
)
$
1.07
Reconciliation of GAAP Net
Income (Loss) to Non-GAAP Distributable Earnings
(in thousands—except share and
per share data)
(Unaudited)
The table below reconciles Net Income
(Loss) to Distributable Earnings for the three months ended June
30, 2023, and March 31, 2023:
Three months ended
(dollars in thousands)
June 30, 2023
March 31, 2023
Net income (loss) attributable to common
stockholders and participating securities
$
(8,633
)
$
6,567
Income tax provision (benefit)
(12
)
12
Net income (loss) before income taxes
(8,645
)
6,579
Adjustments:
Investments:
Unrealized (gain) loss on investments,
securitized debt and other liabilities
6,854
(90,316
)
Realized (gain) loss on sale of
investments
1,099
82,818
One-time transaction costs
1,987
640
Derivative Instruments:
Net realized (gain) loss on
derivatives
(184
)
2,184
Net unrealized (gain) loss on
derivatives
(54
)
(3
)
Other:
Realized (gain) loss on extinguishment of
convertible senior unsecured notes
—
—
Amortization of discount on convertible
senior unsecured notes
171
172
Non-cash stock-based compensation
100
100
Total adjustments
9,973
(4,405
)
Distributable earnings
$
1,328
$
2,174
Basic and diluted distributable earnings
per common share and participating securities
$
0.22
$
0.36
Basic weighted average common shares and
participating securities
6,038,012
6,038,012
Diluted weighted average common shares and
participating securities
6,038,012
6,038,012
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, 2023
March 31, 2023
Net interest income
$
4,010
$
4,355
Interest income from IOs and IIOs
accounted for as derivatives
10
11
Net interest income from interest rate
swaps
766
1,220
Adjusted net interest income
4,786
5,586
Total expenses
(5,899
)
(4,380
)
Non-cash stock-based compensation
100
100
One-time transaction costs
1,987
640
Amortization of discount on convertible
unsecured senior notes
171
172
Interest income on cash balances and other
income (loss), net
186
57
Income attributable to non-controlling
interest
(3
)
(1
)
Distributable Earnings
$
1,328
$
2,174
Reconciliation of GAAP Book Value to Non-GAAP Economic Book
Value
(in thousands—except share and
per share data)
(Unaudited)
(dollars in thousands)
$ Amount
Per Share
GAAP Book Value at March 31,
2023
$
99,358
$
16.46
Common dividend
—
(0.35
)
99,358
16.11
Portfolio Income (Loss)
Net Interest Margin
4,973
0.82
Realized gain (loss), net
(916
)
(0.15
)
Unrealized gain (loss), net
(6,803
)
(1.13
)
Net portfolio income (loss)
(2,746
)
(0.46
)
Operating expenses
(3,239
)
(0.54
)
Transaction costs
—
—
General and administrative expenses,
excluding equity based compensation
(2,559
)
(0.42
)
Provision for taxes
12
—
GAAP Book Value at June 30,
2023
$
88,713
$
14.69
Adjustments to deconsolidate VIEs and
reflect the Company's interest in the securities owned
Arroyo 2019-2
10,244
1.70
Arroyo 2020-1
13,358
2.20
Arroyo 2022-1
(188
)
(0.03
)
Arroyo 2022-2
(146
)
(0.02
)
Economic Book Value at June 30,
2023
$
111,981
$
18.54
Adjustments to deconsolidate VIEs and
reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets
(2,075,179
)
(343.68
)
Deconsolidation VIEs liabilities
1,952,893
323.43
Interest in securities of VIEs owned, at
fair value
145,554
24.11
Economic Book Value at June 30,
2023
$
111,981
$
18.54
"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, Arroyo 2022-1, and Arroyo 2022-2) 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, Arroyo 2022-1, and Arroyo 2022-2). 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
(in thousands—except share and
per share data)
(Unaudited)
The following table reconciles the
Effective Cost of Funds (Non-GAAP financial measure) with interest
expense for three months ended June 30, 2023, and March 31,
2023:
Three months ended
June 30, 2023
March 31, 2023
(dollars in thousands)
Reconciliation
Cost of Funds/Effective
Borrowing Costs
Reconciliation
Cost of Funds/Effective
Borrowing Costs
Interest expense
$
36,212
5.80
%
$
36,502
5.73
%
Adjustments:
Interest expense on Securitized debt from
consolidated VIEs(1)
(21,601
)
(6.72
)%
(21,436
)
(6.78
)%
Net interest (received) paid - interest
rate swaps
(766
)
(0.12
)%
(1,220
)
(0.19
)%
Effective Cost of Funds
$
13,845
4.58
%
$
13,846
4.31
%
Weighted average borrowings
$
1,213,384
$
1,302,345
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230808393949/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
Grafico Azioni Western Asset Mortgage C... (NYSE:WMC)
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