Western Asset Mortgage Capital Corporation Announces Second Quarter 2022 Results and Commences Strategic Alternatives Review Process
Western Asset Mortgage Capital Corporation (WMC) reported its Q2 2022 results, showing a GAAP net loss of $22.4 million, or $3.71 per share. The company acquired $292.8 million in Residential Whole Loans and completed a $402.2 million securitization. A 1-for-10 reverse stock split occurred in July 2022, and recourse leverage improved from 4.7x to 2.4x post-securitization. The Board approved a review of strategic alternatives, possibly leading to a sale or merger. The Q2 dividend was set at $0.40 per share, yielding approximately 13.2% based on a closing price of $12.10.
- Acquired $292.8 million in Residential Whole Loans.
- Completed a $402.2 million securitization, reducing recourse leverage from 4.7x to 2.4x.
- Declared a Q2 dividend of $0.40 per share, yielding ~13.2%.
- Reported a GAAP net loss of $22.4 million, or $3.71 per share.
- GAAP book value per share declined by 15% from the previous quarter.
- Economic return was negative 14.6% for the quarter.
Conference Call and Webcast Scheduled for Tomorrow,
BUSINESS UPDATE
The Company continues to execute on its business strategy to focus on residential real estate investments and to take actions to strengthen its balance sheet:
-
In
July 2022 , effected a 1-for-10 reverse stock split, which is reflected retroactively in all share numbers herein;
-
Also, in
July 2022 , completed its fourth securitization of$402.2 million $351.9 million
-
For the three months ended
June 30, 2022 , acquired$292.8 million July 2022 securitization referenced above; and
-
For the three months ended
June 30, 2022 , repurchased$7.2 million 6.75% Convertible Senior Unsecured Notes due in 2022 ("2022 Notes") at an approximate1% premium to par value, plus accrued and unpaid interest.
Today the Company also announced that its Board of Directors has authorized a review of strategic alternatives for the Company aimed at enhancing shareholder value, which may include a sale or merger of the Company.
For further information, interested parties may contact
SECOND QUARTER 2022 FINANCIAL RESULTS
The rising 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
$23.23 June 30, 2022 .
-
Economic book value(1) per share of
$24.58 June 30, 2022 .
-
GAAP net loss attributable to common shareholders and participating securities of
$22.4 million $3.71
-
Distributable Earnings of
$2.7 million $0.44
-
Economic return(2) on GAAP book value was negative
14.6% for the quarter.
-
1.25% annualized net interest margin(3)(4) on our investment portfolio.
-
Recourse leverage was 4.7x as of
June 30, 2022 , which decreased to 2.4x following the July Non-QM Residential Whole Loan securitization referenced above.
-
On
June 22, 2022 , we declared a second quarter common dividend of$0.40
1. |
Economic book value is a non-GAAP financial measure. Refer to page 20 of this press release for the reconciliation of GAAP book value to non-GAAP economic book value. |
|
2. |
Economic return is calculated by taking the sum of, (i) the total dividends declared, and (ii) the change in book value during the period and dividing by the beginning book value. |
|
3. |
Includes interest-only securities accounted for as derivatives. |
|
4. |
Excludes the consolidation of VIE trusts required under GAAP. |
MANAGEMENT COMMENTARY
“Our quarterly results continue to reflect the ongoing challenges of interest rate volatility and fluctuating asset values, which again translated into credit spread widening across our holdings,” said
"During the second quarter, we continued to implement our strategic portfolio shift towards a focus on residential real estate related investments as we acquired
“We believe that today’s announcement regarding our Board of Directors' authorization to review strategic alternatives for the Company is the best path forward towards unlocking shareholder value. We have made significant progress in the last two years towards strengthening our balance sheet and improving our liquidity and the earnings power of the portfolio. However, we do not believe that these actions are being reflected in our stock price. Therefore, we are committed to considering alternatives that may involve a sale, merger, or other transaction involving the Company,”
OPERATING RESULTS
The below table reflects a summary of our operating results:
|
For the Three Months Ended |
|||||||
GAAP Results |
|
|
|
|||||
|
($ in thousands) |
|||||||
|
|
|
||||||
Net Interest Income |
$ |
6,235 |
|
$ |
4,283 |
|
||
Other Income (Loss): |
|
|
||||||
Realized gain (loss), net |
|
(45,661 |
) |
|
12,145 |
|
||
Unrealized gain (loss), net |
|
16,185 |
|
|
(38,903 |
) |
||
Gain (loss) on derivative instruments, net |
|
4,781 |
|
|
6,936 |
|
||
Other, net |
|
(46 |
) |
|
(145 |
) |
||
Other Income (Loss) |
|
(24,741 |
) |
|
(19,967 |
) |
||
Total Expenses |
|
3,927 |
|
|
6,497 |
|
||
Income (loss) before income taxes |
|
(22,433 |
) |
|
(22,181 |
) |
||
Income tax provision (benefit) |
|
(46 |
) |
|
56 |
|
||
Net income (loss) |
$ |
(22,387 |
) |
$ |
(22,237 |
) |
||
Net income (loss) attributable to non-controlling interest |
|
— |
|
|
3,616 |
|
||
Net income (loss) attributable to common stockholders and participating securities |
$ |
(22,387 |
) |
$ |
(25,853 |
) |
||
|
|
|
||||||
Net income (loss) per Common Share – Basic/Diluted |
$ |
(3.71 |
) |
$ |
(4.30 |
) |
||
Non-GAAP Results |
|
|
||||||
Distributable Earnings(1) |
$ |
2,650 |
|
$ |
379 |
|
||
Distributable Earnings per Common Share – Basic/Diluted(2) |
$ |
0.44 |
|
$ |
0.06 |
|
||
Weighted average yield(3)(4) |
|
4.30 |
% |
|
3.74 |
% |
||
Effective cost of funds(4) |
|
3.60 |
% |
|
3.41 |
% |
||
Annualized net interest margin(3)(4) |
|
1.25 |
% |
|
0.85 |
% |
||
1. |
For a reconciliation of GAAP Income to Distributable Earnings, refer to page 18 of this press release. |
|
2. |
Presentation adjusted for effect of 1-for-10 reverse stock split subsequent to 6/30/2022. |
|
3. |
Includes interest-only securities accounted for as derivatives. |
|
4. |
Excludes the consolidation of VIE trusts required under GAAP. |
INVESTMENT PORTFOLIO
Investment Activity
As of
|
Balance at
|
|
Purchases |
|
Loan
|
|
Principal
|
|
Proceeds
Sales |
|
Transfers
|
|
Realized
|
|
Unrealized
|
|
Premium and
|
|
Balance at
|
||||||||||||||||
Investment Type |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Agency RMBS and Agency RMBS IOs |
$ |
1,172 |
$ |
— |
|
N/A |
$ |
(121 |
) |
$ |
— |
|
|
N/A |
$ |
— |
|
$ |
(266 |
) |
$ |
— |
|
$ |
785 |
||||||||||
Non-Agency RMBS |
|
27,769 |
|
39,952 |
|
N/A |
|
(749 |
) |
|
(27,729 |
) |
|
N/A |
|
(1,170 |
) |
|
(5,914 |
) |
|
39 |
|
|
32,198 |
||||||||||
Non-Agency CMBS |
|
105,358 |
|
— |
|
N/A |
|
(1,673 |
) |
|
(10,152 |
) |
|
N/A |
|
(43,934 |
) |
|
43,497 |
|
|
— |
|
|
93,096 |
||||||||||
Other securities(1) |
|
51,648 |
|
— |
|
N/A |
|
— |
|
|
(4,406 |
) |
|
N/A |
|
(478 |
) |
|
(6,268 |
) |
|
38 |
|
|
40,534 |
||||||||||
Total MBS and other securities |
|
185,947 |
|
39,952 |
|
N/A |
|
(2,543 |
) |
|
(42,287 |
) |
|
N/A |
|
(45,582 |
) |
|
31,049 |
|
|
77 |
|
|
166,613 |
||||||||||
Residential Whole Loans |
|
1,023,502 |
|
411,917 |
|
75 |
|
(155,171 |
) |
|
— |
|
|
— |
|
— |
|
|
(80,155 |
) |
|
(4,315 |
) |
|
1,195,853 |
||||||||||
Residential Bridge Loans |
|
5,428 |
|
— |
|
— |
|
(250 |
) |
|
— |
|
|
— |
|
— |
|
|
(83 |
) |
|
— |
|
|
5,095 |
||||||||||
Commercial Loans |
|
130,572 |
|
— |
|
— |
|
(4 |
) |
|
— |
|
|
— |
|
— |
|
|
(2,147 |
) |
|
— |
|
|
128,421 |
||||||||||
Securitized commercial loans |
|
1,355,808 |
|
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
(125,782 |
) |
|
13,345 |
|
|
1,243,371 |
||||||||||
Real Estate Owned |
|
43,607 |
|
— |
|
N/A |
|
— |
|
|
(54,681 |
) |
|
— |
|
12,198 |
|
|
— |
|
|
N/A |
|
|
1,124 |
||||||||||
Total Investments |
$ |
2,744,864 |
$ |
451,869 |
$ |
75 |
$ |
(157,968 |
) |
$ |
(96,968 |
) |
$ |
— |
$ |
(33,384 |
) |
$ |
(177,118 |
) |
$ |
9,107 |
|
$ |
2,740,477 |
||||||||||
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 3,097 Non-QM adjustable rate mortgages and five investor fixed rate mortgages. The following table presents certain information about our Residential Whole Loans investment portfolio at
|
|
|
|
|
|
Weighted Average |
||||||||
Current Coupon Rate |
|
Number of Loans |
|
Principal
|
|
Original LTV |
|
Original
|
|
Expected
|
|
Contractual
|
|
Coupon
|
|
40 |
|
66.3 % |
758 |
9.0 |
28.8 |
2.9 % |
|||||||
|
484 |
247,017 |
65.0 % |
757 |
6.2 |
28.2 |
3.7 % |
|||||||
|
1,451 |
498,639 |
63.6 % |
749 |
4.8 |
26.4 |
4.6 % |
|||||||
|
895 |
366,805 |
66.2 % |
742 |
4.0 |
27.5 |
5.5 % |
|||||||
|
216 |
98,409 |
71.7 % |
742 |
3.1 |
29.4 |
6.4 % |
|||||||
|
16 |
6,450 |
75.1 % |
737 |
2.7 |
29.6 |
7.4 % |
|||||||
Total |
3,102 |
1,239,970 |
65.4 % |
748 |
4.8 |
27.4 |
4.8 % |
|||||||
1. |
The original FICO score is not available for 250 loans with a principal balance of approximately |
The following table presents the aging of the Residential Whole Loans as of
|
Residential Whole Loans |
|||||||
|
No of
|
Principal |
Fair Value |
|||||
Current |
3,073 |
$ |
1,226,815 |
$ |
1,183,917 |
|||
1-30 days |
8 |
|
2,213 |
|
2,142 |
|||
31-60 days |
1 |
|
359 |
|
361 |
|||
61-90 days |
— |
|
— |
|
— |
|||
90+ days |
20 |
|
10,583 |
|
9,433 |
|||
Total |
3,102 |
$ |
1,239,970 |
$ |
1,195,853 |
|||
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
|
|
|
|
Weighted Average |
|||||||||||||||
Category |
|
Fair
|
|
Purchase
|
|
Life (Years) |
|
Original LTV |
|
Original
|
|
60+ Day
|
|
CPR |
|||||
Prime |
$ |
14,181 |
$ |
79.99 |
9.9 |
67.8 |
% |
748 |
1.2 |
% |
22.0 |
% |
|||||||
Alt-A |
|
18,017 |
|
63.68 |
13.2 |
74.6 |
% |
675 |
12.8 |
% |
14.0 |
% |
|||||||
Total |
$ |
32,198 |
$ |
70.86 |
11.8 |
71.6 |
% |
707 |
7.7 |
% |
17.5 |
% |
|||||||
Commercial Real Estate Investments
Non-Agency CMBS
The following table presents certain characteristics of our Non-Agency CMBS portfolio as of
|
|
|
|
Principal
|
|
|
|
|
Weighted Average |
|||||
Type |
|
Vintage |
|
|
|
Fair Value |
|
Life (Years) |
|
Original LTV |
||||
Conduit: |
|
|
|
|
|
|||||||||
|
2006-2009 |
$ |
87 |
$ |
85 |
2.2 |
88.7 |
% |
||||||
|
2010-2020 |
|
14,982 |
|
10,715 |
7.1 |
62.3 |
% |
||||||
|
|
|
15,069 |
|
10,800 |
7.1 |
62.5 |
% |
||||||
Single Asset: |
|
|
|
|
|
|||||||||
|
2010-2020 |
|
99,079 |
|
82,296 |
1.5 |
65.0 |
% |
||||||
Total |
|
$ |
114,148 |
$ |
93,096 |
2.1 |
64.7 |
% |
||||||
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
Loan |
Loan Type |
Principal
|
Fair
|
Original
|
Interest
|
Maturity
|
Extension
|
Collateral |
Geographic
|
||||||||||||
CRE 3 |
Interest-Only Mezzanine loan |
$ |
90,000 |
$ |
26,934 |
58 |
% |
1-Month LIBOR plus |
|
None(1) |
Entertainment and Retail |
NJ |
|||||||||
CRE 4 |
Interest-Only First Mortgage |
|
38,367 |
|
37,980 |
63 |
% |
1-Month LIBOR plus |
|
A One-Year Extension |
Retail |
CT |
|||||||||
CRE 5 |
Interest-Only First Mortgage |
|
24,535 |
|
24,362 |
62 |
% |
1-Month LIBOR plus |
|
Two One-Year Extensions |
Hotel |
NY |
|||||||||
CRE 6 |
Interest-Only First Mortgage |
|
13,207 |
|
13,114 |
62 |
% |
1-Month LIBOR plus |
|
Two One-Year Extensions |
Hotel |
CA |
|||||||||
CRE 7 |
Interest-Only First Mortgage |
|
7,259 |
|
7,208 |
62 |
% |
1-Month LIBOR plus |
|
Two One-Year Extensions |
Hotel |
IL, FL |
|||||||||
CRE 8 |
Interest-Only First Mortgage |
|
4,425 |
|
4,425 |
79 |
% |
1-Month LIBOR plus |
|
None |
Assisted Living Facilities |
FL |
|||||||||
SBC 3(2) |
Interest-Only First Mortgage |
|
14,362 |
|
14,398 |
49 |
% |
1-Month LIBOR plus |
|
None |
Nursing Facilities |
CT |
|||||||||
|
|
$ |
192,155 |
$ |
128,421 |
|
|
|
|
|
|
||||||||||
1. |
CRE 3 is in default and not eligible for an extension. |
|
2. |
During |
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
Commercial Real Estate Owned
In
PORTFOLIO FINANCING AND HEDGING
Financing
The following table sets forth additional information regarding the Company’s portfolio financing arrangements as of
Securities Pledged |
|
Repurchase Agreement
|
|
Weighted Average
|
|
Weighted Average
|
||
Short-Term Borrowings: |
|
|
|
|||||
Agency RMBS |
$ |
329 |
1.82 |
% |
32 |
|||
Non-Agency RMBS(1) |
|
31,628 |
3.44 |
% |
1 |
|||
Residential Whole Loans (2) |
|
1,116 |
4.12 |
% |
26 |
|||
Residential Bridge Loans (2) |
|
4,166 |
4.13 |
% |
26 |
|||
Commercial Loans (2) |
|
6,463 |
4.73 |
% |
26 |
|||
Other Securities |
|
2,126 |
4.09 |
% |
18 |
|||
Total short term borrowings |
|
45,828 |
3.72 |
% |
8 |
|||
Long Term Borrowings: |
|
|
|
|||||
Non-Agency CMBS and Non-Agency RMBS Facility |
|
|
|
|||||
Non-Agency CMBS (1) |
|
55,155 |
2.28 |
% |
234 |
|||
Non-Agency RMBS |
|
21,943 |
2.28 |
% |
307 |
|||
Other Securities |
|
23,948 |
2.28 |
% |
308 |
|||
Subtotal |
|
101,046 |
2.28 |
% |
267 |
|||
Residential Whole Loan Facility |
|
|
|
|||||
Residential Whole Loans (2) |
|
344,544 |
3.61 |
% |
127 |
|||
Commercial Whole Loan Facility |
|
|
|
|||||
Commercial Loans |
|
63,658 |
2.64 |
% |
87 |
|||
Total long term borrowings |
|
509,248 |
3.23 |
% |
150 |
|||
Repurchase agreements borrowings |
$ |
555,076 |
3.27 |
% |
138 |
|||
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
Commercial Whole Loan Facility
As of
Non-Agency CMBS and Non-Agency RMBS Facility
As of
Convertible Senior Unsecured Notes
2022 Notes
As of
2024 Notes
As of
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
Arroyo 2019-2
The following table summarizes the residential mortgage-backed notes issued by the Company's Arroyo 2019-2 securitization trust at
Classes |
|
Principal
|
|
Coupon |
|
Carrying Value |
|
Contractual
|
|||
Offered Notes: |
|
|
|
|
|||||||
Class A-1 |
$ |
203,885 |
3.3 |
% |
$ |
203,885 |
|
||||
Class A-2 |
|
10,934 |
3.5 |
% |
|
10,934 |
|
||||
Class A-3 |
|
17,323 |
3.8 |
% |
|
17,323 |
|
||||
Class M-1 |
|
25,055 |
4.8 |
% |
|
25,055 |
|
||||
|
|
257,197 |
|
|
257,197 |
|
|||||
Less: Unamortized Deferred Financing Cost |
|
N/A |
|
|
3,056 |
|
|||||
Total |
$ |
257,197 |
|
$ |
254,141 |
|
|||||
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
Classes |
|
Principal
|
|
Coupon |
|
Carrying Value |
|
Contractual
|
|||
Offered Notes: |
|
|
|
|
|||||||
Class A-1A |
$ |
82,908 |
1.7 |
% |
$ |
82,908 |
|
||||
Class A-1B |
|
9,838 |
2.1 |
% |
|
9,838 |
|
||||
Class A-2 |
|
13,518 |
2.9 |
% |
|
13,518 |
|
||||
Class A-3 |
|
17,963 |
3.3 |
% |
|
17,963 |
|
||||
Class M-1 |
|
11,739 |
4.3 |
% |
|
11,739 |
|
||||
Subtotal |
|
135,966 |
|
|
135,966 |
|
|||||
Less: Unamortized Deferred Financing Costs |
|
N/A |
|
|
1,788 |
|
|||||
Total |
$ |
135,966 |
|
$ |
134,178 |
|
|||||
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
Classes |
|
Principal
|
|
Coupon |
|
Fair Value |
|
Contractual
|
|||
Offered Notes: |
|
|
|
|
|||||||
Class A-1A |
$ |
223,469 |
2.5 |
% |
$ |
211,365 |
|
||||
Class A-1B |
|
82,942 |
3.3 |
% |
|
74,912 |
|
||||
Class A-2 |
|
21,168 |
3.6 |
% |
|
18,250 |
|
||||
Class A-3 |
|
28,079 |
3.7 |
% |
|
23,241 |
|
||||
Class M-1 |
|
17,928 |
3.7 |
% |
|
14,000 |
|
||||
Total |
$ |
373,586 |
|
$ |
341,768 |
|
|||||
The Company retained the subordinate bonds and these bonds had a fair market value of
Commercial Mortgage-Backed Notes
The following table summarizes
Classes |
|
Principal Balance |
|
Coupon |
|
Fair Value |
|
Contractual Maturity |
|||
Class A-1 |
$ |
120,391 |
3.3 |
% |
$ |
112,237 |
|
||||
Class A-2 |
|
531,700 |
4.0 |
% |
|
502,516 |
|
||||
Class B |
|
136,400 |
4.2 |
% |
|
125,513 |
|
||||
Class C |
|
94,500 |
4.3 |
% |
|
83,954 |
|
||||
Class D |
|
153,950 |
4.4 |
% |
|
142,388 |
|
||||
Class E |
|
180,150 |
4.4 |
% |
|
141,159 |
|
||||
Class F |
|
153,600 |
4.4 |
% |
|
110,014 |
|
||||
Class X-1(1) |
|
N/A |
0.5 |
% |
|
12,347 |
|
||||
Class X-2(1) |
|
N/A |
— |
% |
|
2,572 |
|
||||
|
$ |
1,370,691 |
|
$ |
1,232,700 |
|
|||||
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
Other Derivative Instruments |
Notional Amount |
Fair Value |
|||||
Credit default swaps, asset |
$ |
2,030 |
$ |
365 |
|
||
TBA securities, asset |
|
100,000 |
|
1,383 |
|
||
Total derivative instruments, assets |
|
|
1,748 |
|
|||
|
|
|
|||||
Interest rate swaps, liability |
$ |
174,000 |
$ |
(1,158 |
) |
||
Credit default swaps, liability |
|
4,140 |
|
(714 |
) |
||
Total derivative instruments, liabilities |
|
|
(1,872 |
) |
|||
Total derivative instruments, net |
|
$ |
(124 |
) |
|||
DIVIDEND
For the quarter ended
CONFERENCE CALL
The Company will host a conference call with a live webcast tomorrow,
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/10169620/f3c46d460c 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
ABOUT
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
Operating results are subject to numerous conditions, many of which are beyond the control of the Company, including, without limitation; changes in interest rate, 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
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
Consolidated Balance Sheets (in thousands—except share and per share data) (Unaudited) |
||||||||
|
|
|
|
|
||||
|
|
|
|
|
||||
Assets: |
|
|
||||||
Cash and cash equivalents |
$ |
15,878 |
|
$ |
42,849 |
|
||
Restricted cash |
|
257 |
|
|
257 |
|
||
Agency mortgage-backed securities, at fair value ( |
|
785 |
|
|
940 |
|
||
Non-Agency mortgage-backed securities, at fair value ( |
|
125,294 |
|
|
169,497 |
|
||
Other securities, at fair value ( |
|
40,534 |
|
|
49,040 |
|
||
Residential Whole Loans, at fair value ( |
|
1,195,853 |
|
|
1,002,710 |
|
||
Residential Bridge Loans, at fair value ( |
|
5,095 |
|
|
5,350 |
|
||
Securitized commercial loans, at fair value |
|
1,243,371 |
|
|
1,288,943 |
|
||
Commercial Loans, at fair value ( |
|
128,421 |
|
|
128,495 |
|
||
Investment related receivable |
|
11,952 |
|
|
20,882 |
|
||
Interest receivable |
|
12,538 |
|
|
10,960 |
|
||
Due from counterparties |
|
5,789 |
|
|
8,819 |
|
||
Derivative assets, at fair value |
|
1,748 |
|
|
3,602 |
|
||
Other assets |
|
3,734 |
|
|
2,265 |
|
||
Total Assets (1) |
$ |
2,791,249 |
|
$ |
2,734,609 |
|
||
|
|
|
||||||
Liabilities and Stockholders’ Equity: |
|
|
||||||
Liabilities: |
|
|
||||||
Repurchase agreements, net |
$ |
555,076 |
|
$ |
342,380 |
|
||
Convertible senior unsecured notes, net |
|
109,661 |
|
|
116,347 |
|
||
Securitized debt, net ( |
|
1,962,787 |
|
|
2,092,482 |
|
||
Interest payable (includes |
|
10,740 |
|
|
8,241 |
|
||
Investment related payables |
|
— |
|
|
— |
|
||
Due to counterparties |
|
360 |
|
|
— |
|
||
Derivative liability, at fair value |
|
1,872 |
|
|
2,335 |
|
||
Accounts payable and accrued expenses |
|
3,585 |
|
|
2,277 |
|
||
Payable to affiliate |
|
3,978 |
|
|
2,691 |
|
||
Dividend payable |
|
2,415 |
|
|
2,415 |
|
||
Other liabilities |
|
437 |
|
|
291 |
|
||
Total Liabilities (2) |
|
2,650,911 |
|
|
2,569,459 |
|
||
|
|
|
||||||
Commitments and contingencies |
|
|
||||||
|
|
|
||||||
Stockholders’ Equity: |
|
|
||||||
Common stock: |
|
60 |
|
|
609 |
|
||
Preferred stock, |
|
— |
|
|
— |
|
||
|
|
(1,665 |
) |
|
(1,665 |
) |
||
Additional paid-in capital |
|
918,974 |
|
|
918,325 |
|
||
Retained earnings (accumulated deficit) |
|
(777,095 |
) |
|
(752,263 |
) |
||
Total Stockholders’ Equity |
|
140,274 |
|
|
165,006 |
|
||
Non-controlling interest |
|
64 |
|
|
144 |
|
||
Total Equity |
|
140,338 |
|
|
165,150 |
|
||
Total Liabilities and Equity |
$ |
2,791,249 |
|
$ |
2,734,609 |
|
||
Consolidated Balance Sheets (Continued) (in thousands—except share and per share data) (Unaudited) |
||||||
|
|
|
||||
(1) Assets of consolidated VIEs included in the total assets above: |
|
|
||||
Cash and cash equivalents |
$ |
— |
$ |
— |
||
Restricted Cash |
|
257 |
|
257 |
||
Residential Whole Loans, at fair value ( |
|
1,195,853 |
|
1,002,710 |
||
Residential Bridge Loans, at fair value ( |
|
5,095 |
|
5,129 |
||
Securitized commercial loans, at fair value |
|
1,243,371 |
|
1,288,943 |
||
Commercial Loans, at fair value ( |
|
14,398 |
|
14,362 |
||
Investment related receivable |
|
11,906 |
|
20,836 |
||
Interest receivable |
|
11,506 |
|
9,539 |
||
Other assets |
|
— |
|
— |
||
Total assets of consolidated VIEs |
$ |
2,482,386 |
$ |
2,341,776 |
||
|
|
|
||||
(2) Liabilities of consolidated VIEs included in the total liabilities above: |
|
|
||||
Securitized debt, net ( |
$ |
1,962,787 |
$ |
2,092,482 |
||
Interest payable (includes |
|
6,901 |
|
7,222 |
||
Accounts payable and accrued expenses |
|
70 |
|
75 |
||
Other liabilities |
|
257 |
|
257 |
||
Total liabilities of consolidated VIEs |
$ |
1,970,015 |
$ |
2,100,036 |
||
Consolidated Statements of Operations (in thousands—except share and per share data) (Unaudited) |
||||||||
|
Three months ended |
|||||||
|
|
|
||||||
Net Interest Income |
|
|
||||||
Interest income |
$ |
39,577 |
|
$ |
35,642 |
|
||
Interest expense |
|
33,342 |
|
|
31,359 |
|
||
Net Interest Income |
|
6,235 |
|
|
4,283 |
|
||
|
|
|
||||||
Other Income (Loss) |
|
|
||||||
Realized gain (loss), net |
|
(45,661 |
) |
|
12,145 |
|
||
Unrealized gain (loss), net |
|
16,185 |
|
|
(38,903 |
) |
||
Gain (loss) on derivative instruments, net |
|
4,781 |
|
|
6,936 |
|
||
Other, net |
|
(46 |
) |
|
(145 |
) |
||
Other Income (Loss) |
|
(24,741 |
) |
|
(19,967 |
) |
||
|
|
|
||||||
Expenses |
|
|
||||||
Management fee to affiliate |
|
1,002 |
|
|
1,100 |
|
||
Other operating expenses |
|
262 |
|
|
296 |
|
||
Transaction costs |
|
344 |
|
|
2,611 |
|
||
General and administrative expenses: |
|
|
||||||
Compensation expense |
|
130 |
|
|
498 |
|
||
Professional fees |
|
1,552 |
|
|
1,256 |
|
||
Other general and administrative expenses |
|
637 |
|
|
736 |
|
||
Total general and administrative expenses |
|
2,319 |
|
|
2,490 |
|
||
Total Expenses |
|
3,927 |
|
|
6,497 |
|
||
|
|
|
||||||
Income (loss) before income taxes |
|
(22,433 |
) |
|
(22,181 |
) |
||
Income tax provision (benefit) |
|
(46 |
) |
|
56 |
|
||
Net income (loss) |
|
(22,387 |
) |
|
(22,237 |
) |
||
Net (loss) income attributable to non-controlling interest |
|
— |
|
|
3,616 |
|
||
Net income (loss) attributable to common stockholders and participating securities |
$ |
(22,387 |
) |
$ |
(25,853 |
) |
||
|
|
|
||||||
Net income (loss) per Common Share – Basic |
$ |
(3.71 |
) |
$ |
(4.30 |
) |
||
Net income (loss) per Common Share – Diluted |
$ |
(3.71 |
) |
$ |
(4.30 |
) |
||
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
|
Three months ended |
|||||||
(dollars in thousands) |
|
|
||||||
Net income (loss) attributable to common stockholders and participating securities |
$ |
(22,387 |
) |
$ |
(25,853 |
) |
||
Income tax provision (benefit) |
|
(46 |
) |
|
56 |
|
||
Net income (loss) before income taxes |
|
(22,433 |
) |
|
(25,797 |
) |
||
|
|
|
||||||
Adjustments: |
|
|
||||||
Investments: |
|
|
||||||
Unrealized (gain) loss on investments, securitized debt and other liabilities |
|
(16,185 |
) |
|
38,903 |
|
||
Realized (gain) loss on sale of investments |
|
45,582 |
|
|
(8,713 |
) |
||
One-time transaction costs |
|
336 |
|
|
2,740 |
|
||
|
|
|
||||||
Derivative Instruments: |
|
|
||||||
Net realized (gain) loss on derivatives |
|
(6,513 |
) |
|
(5,540 |
) |
||
Net unrealized (gain) loss on derivatives |
|
1,498 |
|
|
(1,655 |
) |
||
|
|
|
||||||
Other: |
|
|
||||||
Realized (gain) loss on extinguishment of convertible senior unsecured notes |
|
79 |
|
|
53 |
|
||
Amortization of discount on convertible senior unsecured notes |
|
216 |
|
|
223 |
|
||
Non-cash stock-based compensation |
|
70 |
|
|
165 |
|
||
Total adjustments |
|
25,083 |
|
|
26,176 |
|
||
Distributable earnings |
$ |
2,650 |
|
$ |
379 |
|
||
Basic and diluted distributable earnings per common share and participating securities |
$ |
0.44 |
|
$ |
0.06 |
|
||
Basic weighted average common shares and participating securities |
|
6,038,010 |
|
|
6,038,010 |
|
||
Diluted weighted average common shares and participating securities |
|
6,038,010 |
|
|
6,038,010 |
|
||
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) |
|
|
|
|
|
||||
Net interest income |
|
$ |
6,235 |
|
|
$ |
4,283 |
|
|
Interest income from IOs and IIOs accounted for as derivatives |
|
|
12 |
|
|
|
17 |
|
|
Net interest income from interest rate swaps |
|
|
(262 |
) |
|
|
(291 |
) |
|
Adjusted net interest income |
|
|
5,985 |
|
|
|
4,009 |
|
|
Total expenses |
|
|
(3,927 |
) |
|
|
(6,497 |
) |
|
Non-cash stock-based compensation |
|
|
70 |
|
|
|
165 |
|
|
One-time transaction costs |
|
|
336 |
|
|
|
2,740 |
|
|
Amortization of discount on convertible unsecured senior notes |
|
|
216 |
|
|
|
223 |
|
|
Interest income on cash balances and other income (loss), net |
|
|
(30 |
) |
|
|
(130 |
) |
|
Income attributable to non-controlling interest |
|
|
— |
|
|
|
(131 |
) |
|
Distributable Earnings |
|
$ |
2,650 |
|
|
$ |
379 |
|
|
Reconciliation of GAAP Book Value to Non-GAAP Economic Book Value (dollars in thousands) (Unaudited) |
|||||||
|
|
||||||
(dollars in thousands) |
$ Amount |
Per Share |
|||||
GAAP Book Value at |
$ |
165,006 |
|
$ |
27.33 |
|
|
Common dividend |
|
(2,415 |
) |
|
(0.40 |
) |
|
|
|
162,591 |
|
|
26.93 |
|
|
Portfolio Income (Loss) |
|
|
|||||
Net Interest Margin |
|
5,939 |
|
|
0.98 |
|
|
Realized gain (loss), net |
|
(39,133 |
) |
|
(6.48 |
) |
|
Unrealized gain (loss), net |
|
14,686 |
|
|
2.43 |
|
|
Net portfolio income (loss) |
|
(18,508 |
) |
|
(3.07 |
) |
|
|
|
|
|||||
Operating expenses |
|
(1,606 |
) |
|
(0.27 |
) |
|
General and administrative expenses, excluding equity based compensation |
|
(2,249 |
) |
|
(0.37 |
) |
|
Provision for taxes |
|
46 |
|
|
0.01 |
|
|
GAAP Book Value at |
$ |
140,274 |
|
$ |
23.23 |
|
|
|
|
|
|||||
Adjustments to deconsolidate VIEs and reflect the Company's interest in the securities owned |
|
|
|||||
Deconsolidation of VIEs assets |
|
(2,054,011 |
) |
|
(340.18 |
) |
|
Deconsolidation VIEs liabilities |
|
1,969,705 |
|
|
326.22 |
|
|
Interest in securities of VIEs owned, at fair value |
|
92,441 |
|
|
15.31 |
|
|
Economic Book Value at |
$ |
148,409 |
|
$ |
24.58 |
|
|
"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 (
| 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 |
||||||||||||||
|
|
Three months ended |
||||||||||||
|
|
|
|
|
||||||||||
(dollars in thousands) |
|
Reconciliation |
|
Cost of Funds/Effective Borrowing Costs |
|
Reconciliation |
|
Cost of Funds/Effective Borrowing Costs |
||||||
Interest expense |
|
$ |
33,342 |
|
|
5.01 |
% |
|
$ |
31,359 |
|
|
4.99 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
||||||
Interest expense on Securitized debt from consolidated VIEs(1) |
|
|
(20,979 |
) |
|
(6.65 |
) % |
|
|
(20,829 |
) |
|
(6.71 |
) % |
Net interest paid - interest rate swaps |
|
|
262 |
|
|
0.04 |
% |
|
|
291 |
|
|
5.00 |
% |
Effective Cost of Funds |
|
$ |
12,625 |
|
|
3.60 |
% |
|
$ |
10,821 |
|
|
3.41 |
% |
Weighted average borrowings |
|
$ |
1,405,317 |
|
|
|
|
$ |
1,288,592 |
|
|
|
||
1. Excludes third-party sponsored securitized debt interest expense.
View source version on businesswire.com: https://www.businesswire.com/news/home/20220804005914/en/
Investor Relations Contact:
(310) 622-8223
lclark@finprofiles.com
Media Contact:
(310) 622-8226
tross@finprofiles.com
Source:
FAQ
What were WMC's second quarter 2022 financial results?
How much did WMC acquire in Residential Whole Loans during Q2 2022?
What was the impact of the securitization on WMC's leverage?
When is WMC's conference call to discuss Q2 2022 results?
What dividend did WMC declare for Q2 2022?
