Western Asset Mortgage Capital Corporation Announces Third Quarter 2022 Results
Western Asset Mortgage Capital Corporation (WMC) reported its third-quarter results, revealing a GAAP net loss of $40.0 million or $6.63 per share, impacted by rising interest rates. The GAAP book value per share decreased 30.2% to $16.22. The company executed a reverse stock split and recent strategic alternatives review aimed at enhancing shareholder value. Highlights include $41.3 million from residential loan sales and a declared dividend of $0.40 per share, resulting in a yield of approximately 14.3%. Unrestricted cash stood at $28.6 million post-retirement of 2022 Notes.
- Received $41.3 million from Residential Whole Loans sales or repayments.
- Declared a dividend of $0.40 per share, yielding ~14.3%.
- Retired $26.0 million in 2022 Convertible Senior Unsecured Notes.
- GAAP net loss of $40.0 million, or $6.63 per share.
- 30.2% decline in GAAP book value per share from prior quarter.
- Economic return on GAAP book value negative 28.4%.
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 prior share numbers herein; -
Also, in
July 2022 , completed its fourth securitization of$402.2 million $351.9 million -
For the three months ended
September 30, 2022 , received$41.3 million -
For the three months ended
September 30, 2022 , received$24.6 million -
For the three months ended
September 30, 2022 , repurchased$1.0 million 6.75% Convertible Senior Unsecured Notes due in 2022 ("2022 Notes") at par value. Subsequently, the remaining$26.0 million October 3, 2022 .
In
For further information, interested parties may contact
THIRD QUARTER 2022 FINANCIAL RESULTS
The rising and volatile interest rate environment negatively impacted our third quarter GAAP financial results. Key measures for the quarter were as follows:
-
GAAP book value per share was
$16.22 September 30, 2022 . -
Economic book value(1) per share of
$19.25 September 30, 2022 . -
GAAP net loss attributable to common shareholders and participating securities of
$40.0 million $6.63 -
Distributable Earnings of
$2.3 million $0.37 -
Economic return(2) on GAAP book value was negative
28.4% for the quarter. -
Economic return(2) on economic book value was negative
20.0% for the quarter. -
1.26% annualized net interest margin(3)(4) on our investment portfolio. -
Recourse leverage was 3.3x as of
September 30, 2022 , which improved to 3.1x after the retirement of the 2022 Notes inOctober 2022 . -
Unrestricted cash balance of
$28.6 million October 3, 2022 , after the retirement of the 2022 Notes. -
On
September 22, 2022 , we declared a third quarter common dividend of$0.40
1. |
Economic book value is a non-GAAP financial measure. Refer to page 19 of this press release for the reconciliation of GAAP book value to non-GAAP economic book value. |
|
2. |
Economic return is calculated by taking the sum of, (i) the total dividends declared, and (ii) the change in book value during the period and dividing by the beginning book value. |
|
3. |
Includes interest-only securities accounted for as derivatives. |
|
4. |
Excludes the consolidation of VIE trusts required under GAAP. |
MANAGEMENT COMMENTARY
“Our financial results were again impacted by the ongoing challenges of interest rate volatility and fluctuating credit spreads during the third quarter,” said
“During the third quarter, we focused on strengthening our balance sheet and increasing our liquidity. We received approximately
OPERATING RESULTS
The below table reflects a summary of our operating results:
|
|
For the Three Months Ended |
||||||
GAAP Results |
|
|
|
|
||||
|
|
($ in thousands) |
||||||
Net Interest Income |
|
$ |
5,699 |
|
|
$ |
6,235 |
|
Other Income (Loss): |
|
|
|
|
||||
Realized gain (loss), net |
|
|
(35 |
) |
|
|
(45,661 |
) |
Unrealized gain (loss), net |
|
|
(43,582 |
) |
|
|
16,185 |
|
Gain (loss) on derivative instruments, net |
|
|
4,882 |
|
|
|
4,781 |
|
Other, net |
|
|
(61 |
) |
|
|
(46 |
) |
Other Income (Loss) |
|
|
(38,796 |
) |
|
|
(24,741 |
) |
Total Expenses |
|
|
6,645 |
|
|
|
3,927 |
|
Income (loss) before income taxes |
|
|
(39,742 |
) |
|
|
(22,433 |
) |
Income tax provision (benefit) |
|
|
266 |
|
|
|
(46 |
) |
Net income (loss) |
|
$ |
(40,008 |
) |
|
$ |
(22,387 |
) |
Net income (loss) attributable to non-controlling interest |
|
|
2 |
|
|
|
— |
|
Net income (loss) attributable to common stockholders and participating securities |
|
$ |
(40,010 |
) |
|
$ |
(22,387 |
) |
|
|
|
|
|
||||
Net income (loss) per Common Share – Basic/Diluted |
|
$ |
(6.63 |
) |
|
$ |
(3.71 |
) |
Non-GAAP Results |
|
|
|
|
||||
Distributable Earnings(1) |
|
$ |
2,250 |
|
|
$ |
2,650 |
|
Distributable Earnings per Common Share – Basic/Diluted(2) |
|
$ |
0.37 |
|
|
$ |
0.44 |
|
Weighted average yield(3)(4) |
|
|
4.70 |
% |
|
|
4.30 |
% |
Effective cost of funds(4) |
|
|
3.90 |
% |
|
|
3.60 |
% |
Annualized net interest margin(3)(4) |
|
|
1.26 |
% |
|
|
1.25 |
% |
1. |
For a reconciliation of GAAP Income to Distributable Earnings, refer to page 17 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
Investment Type |
Balance at
|
Purchases |
Loan
|
Principal
|
Proceeds from
|
Transfers
|
Realized
|
Unrealized
|
Premium and
|
Balance at
|
|||||||||||||||
Agency RMBS and Agency RMBS IOs |
$ |
1,172 |
$ |
— |
|
N/A |
$ |
(124 |
) |
$ |
— |
|
|
N/A |
$ |
— |
|
$ |
(328 |
) |
$ |
— |
|
$ |
720 |
Non-Agency RMBS |
|
27,769 |
|
39,952 |
|
N/A |
|
(875 |
) |
|
(27,729 |
) |
|
N/A |
|
(1,170 |
) |
|
(8,420 |
) |
|
159 |
|
|
29,686 |
Non-Agency CMBS |
|
105,358 |
|
— |
|
N/A |
|
(5,705 |
) |
|
(10,152 |
) |
|
N/A |
|
(43,934 |
) |
|
42,869 |
|
|
386 |
|
|
88,822 |
Other securities(1) |
|
51,648 |
|
— |
|
N/A |
|
— |
|
|
(4,406 |
) |
|
N/A |
|
(478 |
) |
|
(8,677 |
) |
|
223 |
|
|
38,310 |
Total MBS and other securities |
|
185,947 |
|
39,952 |
|
N/A |
|
(6,704 |
) |
|
(42,287 |
) |
|
N/A |
|
(45,582 |
) |
|
25,444 |
|
|
768 |
|
|
157,538 |
Residential Whole Loans |
|
1,023,502 |
|
411,917 |
|
79 |
|
(193,363 |
) |
|
(11,735 |
) |
|
— |
|
(33 |
) |
|
(125,482 |
) |
|
(5,260 |
) |
|
1,099,625 |
Residential Bridge Loans |
|
5,428 |
|
— |
|
— |
|
(250 |
) |
|
— |
|
|
— |
|
— |
|
|
(58 |
) |
|
— |
|
|
5,120 |
Commercial Loans |
|
130,572 |
|
— |
|
— |
|
(20,593 |
) |
|
— |
|
|
— |
|
— |
|
|
(19,876 |
) |
|
— |
|
|
90,103 |
Securitized commercial loans |
|
1,355,808 |
|
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
(203,828 |
) |
|
19,934 |
|
|
1,171,914 |
Real Estate Owned |
|
43,607 |
|
— |
|
N/A |
|
— |
|
|
(54,681 |
) |
|
— |
|
12,198 |
|
|
— |
|
|
N/A |
|
|
1,124 |
Total Investments |
$ |
2,744,864 |
$ |
451,869 |
$ |
79 |
$ |
(220,910 |
) |
$ |
(108,703 |
) |
$ |
— |
$ |
(33,417 |
) |
$ |
(323,800 |
) |
$ |
15,442 |
|
$ |
2,525,424 |
Portfolio Characteristics
Residential Real Estate Investments
The Company's focus on residential real estate related investments will include but is not limited to non-qualified residential whole loans ("Non-QM Loans"), non-agency RMBS, and other related assets. The Company believes this focus will allow it to address attractive market opportunities.
Residential Whole Loans
The Company's Residential Whole Loans have low LTV's and are comprised of 2,990 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 |
|
$ |
22,510 |
|
66.3 |
% |
|
758 |
|
9.2 |
|
28.5 |
|
2.9 |
% |
|
|
431 |
|
|
224,994 |
|
65.7 |
% |
|
758 |
|
7.3 |
|
28.5 |
|
3.7 |
% |
|
|
1,372 |
|
|
467,195 |
|
64.0 |
% |
|
749 |
|
5.8 |
|
26.2 |
|
4.6 |
% |
|
|
902 |
|
|
366,708 |
|
65.8 |
% |
|
742 |
|
5.1 |
|
27.1 |
|
5.4 |
% |
|
|
235 |
|
|
103,067 |
|
70.3 |
% |
|
742 |
|
3.9 |
|
28.8 |
|
6.4 |
% |
|
|
15 |
|
|
5,852 |
|
75.1 |
% |
|
731 |
|
3.2 |
|
29.4 |
|
7.4 |
% |
Total |
|
2,995 |
|
|
1,190,326 |
|
65.5 |
% |
|
748 |
|
5.8 |
|
27.2 |
|
4.8 |
% |
1. |
The original FICO score is not available for 236 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 |
|
2,985 |
|
$ |
1,184,619 |
|
$ |
1,094,291 |
1-30 days |
|
3 |
|
|
2,448 |
|
|
2,324 |
31-60 days |
|
— |
|
|
— |
|
|
— |
61-90 days |
|
— |
|
|
— |
|
|
— |
90+ days |
|
7 |
|
|
3,259 |
|
|
3,010 |
Total |
|
2,995 |
|
$ |
1,190,326 |
|
$ |
1,099,625 |
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 Value |
|
Purchase
|
|
Life (Years) |
|
Original LTV |
|
Original
|
|
60+ Day
|
|
CPR |
|||||
Prime |
|
$ |
12,865 |
|
$ |
79.89 |
|
12.1 |
|
67.8 |
% |
|
748 |
|
5.0 |
% |
|
18.0 |
% |
Alt-A |
|
|
16,821 |
|
|
63.55 |
|
14.3 |
|
74.5 |
% |
|
675 |
|
11.8 |
% |
|
12.6 |
% |
Total |
|
$ |
29,686 |
|
$ |
70.63 |
|
13.3 |
|
71.6 |
% |
|
707 |
|
8.8 |
% |
|
15.0 |
% |
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 |
|
Balance |
|
Fair Value |
|
Life (Years) |
|
Original LTV |
|||
Conduit: |
|
|
|
|
|
|
|
|
|
|
|||
|
|
2006-2009 |
|
$ |
76 |
|
$ |
75 |
|
0.6 |
|
88.7 |
% |
|
|
2010-2020 |
|
|
14,982 |
|
|
10,490 |
|
6.4 |
|
62.3 |
% |
|
|
|
|
|
15,058 |
|
|
10,565 |
|
6.4 |
|
62.5 |
% |
Single Asset: |
|
|
|
|
|
|
|
|
|
|
|||
|
|
2010-2020 |
|
|
95,057 |
|
|
78,257 |
|
1.2 |
|
65.5 |
% |
Total |
|
|
|
$ |
110,115 |
|
$ |
88,822 |
|
1.9 |
|
65.1 |
% |
Commercial Loans
The following table presents our commercial loan investments as of
Loan |
Loan Type |
Principal
|
Fair Value |
Original
|
Interest Rate |
Maturity
|
Extension
|
Collateral |
Geographic
|
|||
CRE 3 |
Interest-Only Mezzanine loan |
$ |
90,000 |
$ |
8,777 |
58 |
% |
1-Month LIBOR plus |
|
None(1) |
Entertainment and Retail |
NJ |
CRE 4(2) |
Interest-Only First Mortgage |
|
22,204 |
|
22,204 |
63 |
% |
1-Month LIBOR plus |
|
None |
Retail |
CT |
CRE 5 |
Interest-Only First Mortgage |
|
24,535 |
|
24,405 |
62 |
% |
1-Month LIBOR plus |
|
One-Year Extension |
Hotel |
NY |
CRE 6 |
Interest-Only First Mortgage |
|
13,207 |
|
13,136 |
62 |
% |
1-Month LIBOR plus |
|
One-Year Extension |
Hotel |
CA |
CRE 7 |
Interest-Only First Mortgage |
|
7,259 |
|
7,220 |
62 |
% |
1-Month LIBOR plus |
|
One-Year Extension |
Hotel |
IL, FL |
SBC 3(3) |
Interest-Only First Mortgage |
|
14,362 |
|
14,361 |
49 |
% |
1-Month LIBOR plus |
|
None |
Nursing Facilities |
CT |
|
|
$ |
171,567 |
$ |
90,103 |
|
|
|
|
|
|
|
1. |
CRE 3 is in default and not eligible for an extension. |
|
2. |
CRE 4 was granted a 3 year extension through |
|
3. |
During |
Commercial Loan Payoffs
On
Non-Performing Commercial Loan
The impact of the 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 |
|
$ |
317 |
|
3.15 |
% |
|
32 |
Non-Agency RMBS(1) |
|
|
54,228 |
|
6.17 |
% |
|
88 |
Residential Whole Loans (2) |
|
|
778 |
|
5.40 |
% |
|
11 |
Residential Bridge Loans (2) |
|
|
2,895 |
|
5.60 |
% |
|
11 |
Commercial Loans (2) |
|
|
5,630 |
|
6.18 |
% |
|
11 |
Other Securities |
|
|
1,966 |
|
5.75 |
% |
|
17 |
Total short term borrowings |
|
|
65,814 |
|
6.11 |
% |
|
75 |
Long Term Borrowings: |
|
|
|
|
|
|
||
Non-Agency CMBS and Non-Agency RMBS Facility |
|
|
|
|
|
|
||
Non-Agency CMBS (1) |
|
|
55,155 |
|
2.28 |
% |
|
214 |
Non-Agency RMBS |
|
|
21,943 |
|
2.28 |
% |
|
214 |
Other Securities |
|
|
23,948 |
|
2.28 |
% |
|
214 |
Subtotal |
|
|
101,046 |
|
2.28 |
% |
|
214 |
Residential Whole Loan Facility |
|
|
|
|
|
|
||
Residential Whole Loans (2) |
|
|
4,049 |
|
5.11 |
% |
|
35 |
Commercial Whole Loan Facility |
|
|
|
|
|
|
||
Commercial Loans |
|
|
48,032 |
|
4.55 |
% |
|
35 |
Total long term borrowings |
|
|
153,127 |
|
3.07 |
% |
|
153 |
Repurchase agreements borrowings |
|
$ |
218,941 |
|
3.98 |
% |
|
130 |
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 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
Classes |
Principal Balance |
Coupon |
Carrying Value |
Contractual
|
|||
Offered Notes: |
|
|
|
|
|||
Class A-1 |
$ |
176,628 |
3.3 |
% |
$ |
176,628 |
|
Class A-2 |
|
9,473 |
3.5 |
% |
|
9,473 |
|
Class A-3 |
|
15,007 |
3.8 |
% |
|
15,007 |
|
Class M-1 |
|
25,055 |
4.8 |
% |
|
25,055 |
|
|
|
226,163 |
|
|
226,163 |
|
|
Less: Unamortized Deferred Financing Cost |
|
N/A |
|
|
2,830 |
|
|
Total |
$ |
226,163 |
|
$ |
223,333 |
|
|
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 Balance |
Coupon |
Carrying Value |
Contractual
|
|||
Offered Notes: |
|
|
|
|
|||
Class A-1A |
$ |
77,393 |
1.7 |
% |
$ |
77,393 |
|
Class A-1B |
|
9,184 |
2.1 |
% |
|
9,184 |
|
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 |
|
129,797 |
|
|
129,797 |
|
|
Less: Unamortized Deferred Financing Costs |
|
N/A |
|
|
1,665 |
|
|
Total |
$ |
129,797 |
|
$ |
128,132 |
|
|
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 Balance |
Coupon |
Fair Value |
Contractual
|
|||
Offered Notes: |
|
|
|
|
|||
Class A-1A |
$ |
218,530 |
2.5 |
% |
$ |
199,526 |
|
Class A-1B |
|
82,942 |
3.3 |
% |
|
69,669 |
|
Class A-2 |
|
21,168 |
3.6 |
% |
|
16,617 |
|
Class A-3 |
|
28,079 |
3.7 |
% |
|
21,312 |
|
Class M-1 |
|
17,928 |
3.7 |
% |
|
12,814 |
|
Total |
$ |
368,647 |
|
$ |
319,938 |
|
|
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
Classes |
Principal Balance |
Coupon |
Fair Value |
Contractual
|
|||
Offered Notes: |
|
|
|
|
|||
Class A-1 |
$ |
273,691 |
5.0 |
% |
$ |
263,315 |
|
Class A-2 |
|
23,297 |
5.0 |
% |
|
21,916 |
|
Class A-3 |
|
28,388 |
5.0 |
% |
|
26,398 |
|
Class M-1 |
|
17,694 |
5.0 |
% |
|
15,097 |
|
Subtotal |
|
343,070 |
|
|
326,726 |
|
|
Less: Unamortized Deferred Financing Costs |
|
N/A |
|
|
— |
|
|
Total |
$ |
343,070 |
|
$ |
326,726 |
|
|
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
|
|||
Class A-1 |
$ |
120,391 |
3.3 |
% |
$ |
109,867 |
|
Class A-2 |
|
531,700 |
4.0 |
% |
|
482,628 |
|
Class B |
|
136,400 |
4.2 |
% |
|
119,584 |
|
Class C |
|
94,500 |
4.3 |
% |
|
79,772 |
|
Class D |
|
153,950 |
4.4 |
% |
|
122,083 |
|
Class E |
|
180,150 |
4.4 |
% |
|
132,952 |
|
Class F |
|
153,600 |
4.4 |
% |
|
104,961 |
|
Class X-1(1) |
|
N/A |
0.5 |
% |
|
8,268 |
|
Class X-2(1) |
|
N/A |
— |
% |
|
1,618 |
|
|
$ |
1,370,691 |
|
$ |
1,161,733 |
|
|
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 |
||
Interest rate swaps, asset |
|
$ |
152,000 |
|
$ |
262 |
Total derivative instruments, assets |
|
|
|
|
262 |
|
|
|
|
|
|
||
Total derivative instruments, liabilities |
|
|
|
|
— |
|
Total derivative instruments, net |
|
|
|
$ |
262 |
|
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/10171772/f4a70b6864 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” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 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 |
|
$ |
55,352 |
|
|
$ |
15,878 |
|
Restricted cash |
|
|
251 |
|
|
|
257 |
|
Agency mortgage-backed securities, at fair value ( |
|
|
720 |
|
|
|
785 |
|
Non-Agency mortgage-backed securities, at fair value ( |
|
|
118,508 |
|
|
|
125,294 |
|
Other securities, at fair value ( |
|
|
38,310 |
|
|
|
40,534 |
|
Residential Whole Loans, at fair value ( |
|
|
1,099,625 |
|
|
|
1,195,853 |
|
Residential Bridge Loans, at fair value ( |
|
|
5,120 |
|
|
|
5,095 |
|
Securitized commercial loans, at fair value |
|
|
1,171,914 |
|
|
|
1,243,371 |
|
Commercial Loans, at fair value ( |
|
|
90,103 |
|
|
|
128,421 |
|
Investment related receivable |
|
|
8,720 |
|
|
|
11,952 |
|
Interest receivable |
|
|
11,324 |
|
|
|
12,538 |
|
Due from counterparties |
|
|
3,215 |
|
|
|
5,789 |
|
Derivative assets, at fair value |
|
|
262 |
|
|
|
1,748 |
|
Other assets |
|
|
2,881 |
|
|
|
3,734 |
|
Total Assets (1) |
|
$ |
2,606,305 |
|
|
$ |
2,791,249 |
|
|
|
|
|
|
||||
Liabilities and Stockholders’ Equity: |
|
|
|
|
||||
Liabilities: |
|
|
|
|
||||
Repurchase agreements, net |
|
$ |
218,941 |
|
|
$ |
555,076 |
|
Convertible senior unsecured notes, net |
|
|
109,162 |
|
|
|
109,661 |
|
Securitized debt, net ( |
|
|
2,159,862 |
|
|
|
1,962,787 |
|
Interest payable (includes |
|
|
10,460 |
|
|
|
10,740 |
|
Investment related payables |
|
|
— |
|
|
|
— |
|
Due to counterparties |
|
|
— |
|
|
|
360 |
|
Derivative liability, at fair value |
|
|
— |
|
|
|
1,872 |
|
Accounts payable and accrued expenses |
|
|
3,887 |
|
|
|
3,585 |
|
Payable to affiliate |
|
|
3,353 |
|
|
|
3,978 |
|
Dividend payable |
|
|
2,415 |
|
|
|
2,415 |
|
Other liabilities |
|
|
262 |
|
|
|
437 |
|
Total Liabilities (2) |
|
|
2,508,342 |
|
|
|
2,650,911 |
|
|
|
|
|
|
||||
Commitments and contingencies |
|
|
|
|
||||
|
|
|
|
|
||||
Stockholders’ Equity: |
|
|
|
|
||||
Common stock: |
|
|
60 |
|
|
|
60 |
|
Preferred stock, |
|
|
— |
|
|
|
— |
|
|
|
|
(1,665 |
) |
|
|
(1,665 |
) |
Additional paid-in capital |
|
|
919,106 |
|
|
|
918,974 |
|
Retained earnings (accumulated deficit) |
|
|
(819,553 |
) |
|
|
(777,095 |
) |
Total Stockholders’ Equity |
|
|
97,948 |
|
|
|
140,274 |
|
Non-controlling interest |
|
|
15 |
|
|
|
64 |
|
Total Equity |
|
|
97,963 |
|
|
|
140,338 |
|
Total Liabilities and Equity |
|
$ |
2,606,305 |
|
|
$ |
2,791,249 |
|
|
||||||
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 |
|
$ |
236 |
|
$ |
— |
Restricted Cash |
|
|
251 |
|
|
257 |
Residential Whole Loans, at fair value ( |
|
|
1,099,625 |
|
|
1,195,853 |
Residential Bridge Loans, at fair value ( |
|
|
5,120 |
|
|
5,095 |
Securitized commercial loans, at fair value |
|
|
1,171,914 |
|
|
1,243,371 |
Commercial Loans, at fair value ( |
|
|
14,361 |
|
|
14,398 |
Investment related receivable |
|
|
8,674 |
|
|
11,906 |
Interest receivable |
|
|
10,191 |
|
|
11,506 |
Other assets |
|
|
— |
|
|
— |
Total assets of consolidated VIEs |
|
$ |
2,310,372 |
|
$ |
2,482,386 |
|
|
|
|
|
||
(2) Liabilities of consolidated VIEs included in the total liabilities above: |
|
|
|
|
||
Securitized debt, net ( |
|
$ |
2,159,862 |
|
$ |
1,962,787 |
Interest payable (includes |
|
|
8,209 |
|
|
6,901 |
Accounts payable and accrued expenses |
|
|
69 |
|
|
70 |
Other liabilities |
|
|
251 |
|
|
257 |
Total liabilities of consolidated VIEs |
|
$ |
2,168,391 |
|
$ |
1,970,015 |
|
||||||||
Consolidated Statements of Operations |
||||||||
(in thousands—except share and per share data) |
||||||||
(Unaudited) |
||||||||
|
|
Three months ended |
||||||
|
|
|
|
|
||||
Net Interest Income |
|
|
|
|
||||
Interest income |
|
$ |
41,406 |
|
|
$ |
39,577 |
|
Interest expense |
|
|
35,707 |
|
|
|
33,342 |
|
Net Interest Income |
|
|
5,699 |
|
|
|
6,235 |
|
|
|
|
|
|
||||
Other Income (Loss) |
|
|
|
|
||||
Realized gain (loss), net |
|
|
(35 |
) |
|
|
(45,661 |
) |
Unrealized gain (loss), net |
|
|
(43,582 |
) |
|
|
16,185 |
|
Gain (loss) on derivative instruments, net |
|
|
4,882 |
|
|
|
4,781 |
|
Other, net |
|
|
(61 |
) |
|
|
(46 |
) |
Other Income (Loss) |
|
|
(38,796 |
) |
|
|
(24,741 |
) |
|
|
|
|
|
||||
Expenses |
|
|
|
|
||||
Management fee to affiliate |
|
|
850 |
|
|
|
1,002 |
|
Other operating expenses |
|
|
343 |
|
|
|
262 |
|
Transaction costs |
|
|
2,635 |
|
|
|
344 |
|
General and administrative expenses: |
|
|
|
|
||||
Compensation expense |
|
|
515 |
|
|
|
130 |
|
Professional fees |
|
|
1,626 |
|
|
|
1,552 |
|
Other general and administrative expenses |
|
|
676 |
|
|
|
637 |
|
Total general and administrative expenses |
|
|
2,817 |
|
|
|
2,319 |
|
Total Expenses |
|
|
6,645 |
|
|
|
3,927 |
|
|
|
|
|
|
||||
Income (loss) before income taxes |
|
|
(39,742 |
) |
|
|
(22,433 |
) |
Income tax provision (benefit) |
|
|
266 |
|
|
|
(46 |
) |
Net income (loss) |
|
|
(40,008 |
) |
|
|
(22,387 |
) |
Net (loss) income attributable to non-controlling interest |
|
|
2 |
|
|
|
— |
|
Net income (loss) attributable to common stockholders and participating securities |
|
$ |
(40,010 |
) |
|
$ |
(22,387 |
) |
|
|
|
|
|
||||
Net income (loss) per Common Share – Basic |
|
$ |
(6.63 |
) |
|
$ |
(3.71 |
) |
Net income (loss) per Common Share – Diluted |
|
$ |
(6.63 |
) |
|
$ |
(3.71 |
) |
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 |
|
$ |
(40,010 |
) |
|
$ |
(22,387 |
) |
Income tax provision (benefit) |
|
|
266 |
|
|
|
(46 |
) |
Net income (loss) before income taxes |
|
|
(39,744 |
) |
|
|
(22,433 |
) |
|
|
|
|
|
||||
Adjustments: |
|
|
|
|
||||
Investments: |
|
|
|
|
||||
Unrealized (gain) loss on investments, securitized debt and other liabilities |
|
|
43,582 |
|
|
|
(16,185 |
) |
Realized (gain) loss on sale of investments |
|
|
33 |
|
|
|
45,582 |
|
One-time transaction costs |
|
|
2,632 |
|
|
|
336 |
|
|
|
|
|
|
||||
Derivative Instruments: |
|
|
|
|
||||
Net realized (gain) loss on derivatives |
|
|
(929 |
) |
|
|
(6,513 |
) |
Net unrealized (gain) loss on derivatives |
|
|
(3,636 |
) |
|
|
1,498 |
|
|
|
|
|
|
||||
Other: |
|
|
|
|
||||
Realized (gain) loss on extinguishment of convertible senior unsecured notes |
|
|
2 |
|
|
|
79 |
|
Amortization of discount on convertible senior unsecured notes |
|
|
209 |
|
|
|
216 |
|
Non-cash stock-based compensation |
|
|
100 |
|
|
|
70 |
|
Total adjustments |
|
|
41,994 |
|
|
|
25,083 |
|
Distributable earnings |
|
$ |
2,250 |
|
|
$ |
2,650 |
|
Basic and diluted distributable earnings per common share and participating securities |
|
$ |
0.37 |
|
|
$ |
0.44 |
|
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 |
|
$ |
5,699 |
|
|
$ |
6,235 |
|
Interest income from IOs and IIOs accounted for as derivatives |
|
|
11 |
|
|
|
12 |
|
Net interest income from interest rate swaps |
|
|
298 |
|
|
|
(262 |
) |
Adjusted net interest income |
|
|
6,008 |
|
|
|
5,985 |
|
Total expenses |
|
|
(6,645 |
) |
|
|
(3,927 |
) |
Non-cash stock-based compensation |
|
|
100 |
|
|
|
70 |
|
One-time transaction costs |
|
|
2,632 |
|
|
|
336 |
|
Amortization of discount on convertible unsecured senior notes |
|
|
209 |
|
|
|
216 |
|
Interest income on cash balances and other income (loss), net |
|
|
(52 |
) |
|
|
(30 |
) |
Income attributable to non-controlling interest |
|
|
(2 |
) |
|
|
— |
|
Distributable Earnings |
|
$ |
2,250 |
|
|
$ |
2,650 |
|
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 |
$ |
140,274 |
|
$ |
23.23 |
|
||
Common dividend |
|
(2,416 |
) |
|
(0.40 |
) |
||
|
|
137,858 |
|
|
22.83 |
|
||
Portfolio Income (Loss) |
|
|
||||||
Net Interest Margin |
|
5,946 |
|
|
0.98 |
|
||
Realized gain (loss), net |
|
901 |
|
|
0.15 |
|
||
Unrealized gain (loss), net |
|
(39,947 |
) |
|
(6.62 |
) |
||
Net portfolio income (loss) |
|
(33,100 |
) |
|
(5.49 |
) |
||
|
|
|
||||||
Operating expenses |
|
(1,192 |
) |
|
(0.20 |
) |
||
Transaction costs |
|
(2,635 |
) |
|
(0.45 |
) |
||
General and administrative expenses, excluding equity based compensation |
|
(2,717 |
) |
|
(0.45 |
) |
||
Provision for taxes |
|
(266 |
) |
|
(0.04 |
) |
||
GAAP Book Value at |
$ |
97,948 |
|
$ |
16.22 |
|
||
|
|
|
||||||
Adjustments to deconsolidate VIEs and reflect the Company's interest in the securities owned |
|
|
||||||
Arroyo 2019-2 |
|
7,574 |
|
|
1.25 |
|
||
Arroyo 2020-1 |
|
11,116 |
|
|
1.84 |
|
||
Arroyo 2022-1 |
|
(262 |
) |
|
(0.04 |
) |
||
Arroyo 2022-2 |
|
(118 |
) |
|
(0.02 |
) |
||
Economic Book Value at |
$ |
116,258 |
|
$ |
19.25 |
|
||
|
|
|
||||||
Adjustments to deconsolidate VIEs and reflect the Company's interest in the securities owned |
|
|
||||||
Deconsolidation of VIEs assets |
|
(2,281,396 |
) |
|
(377.84 |
) |
||
Deconsolidation VIEs liabilities |
|
2,168,088 |
|
|
359.07 |
|
||
Interest in securities of VIEs owned, at fair value |
|
131,618 |
|
|
21.80 |
|
||
Economic Book Value at |
$ |
116,258 |
|
$ |
19.25 |
|
||
"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
|
|
Reconciliation |
|
Cost of
|
||||||
Interest expense |
|
$ |
35,707 |
|
|
5.20 |
% |
|
$ |
33,342 |
|
|
5.01 |
% |
Adjustments: |
|
|
|
|
|
|
|
|
||||||
Interest expense on Securitized debt from consolidated VIEs(1) |
|
|
(21,132 |
) |
|
(6.60 |
)% |
|
|
(20,979 |
) |
|
(6.65 |
)% |
Net interest paid - interest rate swaps |
|
|
(298 |
) |
|
(0.04 |
)% |
|
|
262 |
|
|
0.04 |
% |
Effective Cost of Funds |
|
$ |
14,277 |
|
|
3.90 |
% |
|
$ |
12,625 |
|
|
3.60 |
% |
Weighted average borrowings |
|
$ |
1,452,090 |
|
|
|
|
$ |
1,405,317 |
|
|
|
||
1. |
Excludes third-party sponsored securitized debt interest expense. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20221103006206/en/
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Source:
FAQ
What were the financial results of WMC for Q3 2022?
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