Western Asset Mortgage Capital Corporation Announces Second Quarter 2023 Results
- The company received $28.4M from loan sales and repayments, $1.1M from loan repayments, and $8.7M from securities sales, which could positively affect stock price. They replaced a financing facility with a new $65M funding vehicle, which could positively affect stock price. They declared a Q2 dividend of $0.35 per share, which could positively affect stock price.
- The rising interest rate environment negatively impacted the company's results, which could negatively affect stock price. The economic return on book value was -8.6%, which could negatively affect stock price.
Conference Call and Webcast Scheduled for Tomorrow, August 9, 2023 at 11:00 a.m. Eastern Time/8:00 a.m. Pacific Time
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
from the sale or repayment of Residential Whole Loans and Non-Agency RMBS;$28.4 million -
the Company received
from the repayment or paydown of Commercial Whole Loans, Non-Agency CMBS, and Other Securities; and$1.1 million -
the Company received
in proceeds from the sale of Other Securities.$8.7 million
-
the Company received
-
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,
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.$65 million
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
at June 30, 2023.$14.69
-
Economic book value(1) per share of
at June 30, 2023.$18.54
-
GAAP net loss attributable to common shareholders and participating securities of
, or$8.6 million per share.$1.44
-
Distributable Earnings(1) of
, or$1.3 million per basic and diluted share.$0.22
-
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
per share.$0.35
(1) |
|
Non-GAAP measure. Refer to pages 15 through 18 of this press release for reconciliations. |
(2) |
|
Economic return is calculated by taking the sum of: (i) the total dividends declared and (ii) the change in book value during the period, divided by beginning book value. |
(3) |
|
Includes interest-only securities accounted for as derivatives. |
(4) |
|
Excludes the consolidation of VIE trusts required under GAAP. |
OPERATING RESULTS |
||||||||
The below table reflects a summary of our operating results: |
||||||||
|
|
For the Three Months Ended |
||||||
|
|
June 30, 2023 |
|
March 31, 2023 |
||||
GAAP Results |
|
($ 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
“For the second quarter, our GAAP book value per share decreased
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
|
Balance at |
|
Loan Modification/
|
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 |
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 |
|||
|
|
39 |
|
$ |
22,018 |
|
66.3 |
% |
|
758 |
|
8.9 |
|
27.8 |
|
2.9 |
% |
|
|
366 |
|
|
200,548 |
|
66.9 |
% |
|
760 |
|
7.5 |
|
28.3 |
|
3.7 |
% |
|
|
1,236 |
|
|
417,820 |
|
64.5 |
% |
|
750 |
|
5.7 |
|
25.7 |
|
4.6 |
% |
|
|
875 |
|
|
347,001 |
|
65.5 |
% |
|
742 |
|
4.8 |
|
26.2 |
|
5.5 |
% |
|
|
282 |
|
|
110,986 |
|
68.1 |
% |
|
742 |
|
3.6 |
|
27.2 |
|
6.4 |
% |
|
|
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 |
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 |
|
1-Month SOFR plus |
8/6/2025(1) |
None |
Retail |
CT |
CRE 5 |
Interest-Only First Mortgage |
24,535 |
23,993 |
|
1-Month SOFR plus |
11/6/2023(2) |
One - 12 month extension |
Hotel |
NY |
CRE 6 |
Interest-Only First Mortgage |
13,207 |
12,914 |
|
1-Month SOFR plus |
11/6/2023(2) |
One - 12 month extension |
Hotel |
CA |
CRE 7 |
Interest-Only First Mortgage |
7,259 |
7,099 |
|
1-Month SOFR plus |
11/6/2023(2) |
One - 12 month extension |
Hotel |
IL, FL |
SBC 3(3) |
Interest-Only First Mortgage |
12,750 |
12,747 |
|
1-Month SOFR plus |
8/4/2023 |
One - 3 month extension |
Nursing Facilities |
CT |
|
|
|
|
|
|
|
|
|
|
(1) In August 2022, CRE 4 was extended three years through August 6, 2025, with a principal pay down of |
|||||||||
(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 |
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
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
Commercial Whole Loan Facility
The facility matures on November 3, 2023 and bears interest at a rate of SOFR plus
Convertible Senior Unsecured Notes
As of June 30, 2023, the Company had
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
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
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
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
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
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 |
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
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
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 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
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 ( |
|
|
838 |
|
|
|
837 |
|
Non-Agency mortgage-backed securities, at fair value ( |
|
|
82,686 |
|
|
|
87,133 |
|
Other securities, at fair value ( |
|
|
16,615 |
|
|
|
24,857 |
|
Residential Whole Loans, at fair value ( |
|
|
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 ( |
|
|
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 ( |
|
|
1,944,906 |
|
|
|
2,039,353 |
|
Interest payable (includes |
|
|
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: |
|
|
60 |
|
|
|
60 |
|
Preferred stock, |
|
|
— |
|
|
|
— |
|
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 ( |
|
|
1,037,381 |
|
|
1,074,417 |
Residential Bridge Loans, at fair value ( |
|
|
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 ( |
|
$ |
1,944,906 |
|
$ |
2,039,353 |
Interest payable (includes |
|
|
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 |
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
Source: Western Asset Mortgage Capital Corporation
FAQ
What were the key financial results for Western Asset Mortgage Capital Corporation in Q2 2023?
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Did the company make any changes to its financing arrangements?